General Mills

General Mills Mills General General Mills Number One General Mills Boulevard A Portfolio for Global Growth Minneapolis, MN 55426-1347 Annual Report 2011 GeneralMills.com Annual Report 2011

What started 70 years ago as a brand new cereal has become a mainstay on millions of breakfast tables. Today, one of every eight boxes of cereal sold in the U.S. is a Cheerios variety. Shareholder Information

World Headquarters Transfer Agent and Registrar Notice of Annual Meeting Number One General Mills Boulevard Our transfer agent can assist you with Th e annual meeting of shareholders will WE HAVE A Minneapolis, MN 55426-1347 a variety of services, including change be held at 11 a.m., Central Daylight Time, Phone: (763) 764-7600 of address or questions about dividend Sept. 26, 2011, at the Children’s Th eatre checks. Company, 2400 Th ird Avenue South, PORTFOLIO BUILT FOR Website Minneapolis, MN 55404-3597. GeneralMills.com Wells Fargo Bank, N.A. 161 North Concord Exchange A ticket or proof of share ownership will GLOBAL GROWTH. Markets P.O. Box 64854 be required for admission. Please refer New York Stock Exchange St. Paul, MN 55164-0854 to our Proxy Statement for information Trading Symbol: GIS Phone: (800) 670-4763 or (651) 450-4084 concerning admission to the meeting. From ready-to-eat cereal to convenient meals to wholesome snacks, we WellsFargo.com/shareownerservices compete in growing food categories that are on-trend with consumer Independent Auditor General Mills Direct Stock Purchase Plan KPMG LLP Electronic Access to Proxy Statement, Th is plan provides a convenient and tastes around the world. Our brands hold leading market positions in more 4200 Wells Fargo Center Annual Report and Form 10-K economical way to invest in General Mills than 100 markets worldwide, with great opportunities for expansion. 90 South Seventh Street Shareholders who have access to the stock. You can increase your ownership Minneapolis, MN 55402-3900 Internet are encouraged to enroll in the over time through purchases of common Phone: (612) 305-5000 electronic delivery program. Please see stock and reinvestment of cash dividends, Investor Inquiries the Investors section of our website, without paying brokerage commissions General Shareholder Information: GeneralMills.com, or go directly to the and other fees on your purchases and Investor Relations Department website, ICSDelivery.com/GIS and follow reinvestments. For more information (800) 245-5703 or (763) 764-3202 the instructions to enroll. If your General and a copy of a plan prospectus, go to Mills shares are not registered in your the Investors section of our website at Analysts/Investors: name, contact your bank or broker to GeneralMills.com. Kristen S. Wenker enroll in this program. Vice President, Investor Relations (763) 764-2607

Holiday Gift Boxes Visit us on the Web We have a variety of websites that appeal to consumers around the world. Below is a selection of our most popular sites. For a more complete list, see the “Our websites” General Mills at a Glance page on GeneralMills.com. U.S. Sites International Sites U.S. Retail International Bakeries and Foodservice Joint Ventures Cheerios.com HaagenDazs.com.cn (China) Net sales by division Net sales by region Net sales by customer type Net sales by joint venture Pillsbury.com HaagenDazs.fr (France) (not consolidated, proportionate share) Yoplait.com NatureValley.co.uk (United Kingdom) 2% General Mills Gift Boxes are a part of Larabar.com OldElPaso.com.au (Australia) 8% 13% 12% 15% many shareholders’ December holiday 13% 23% 31% BettyCrocker.com LifeMadeDelicious.ca (Canada) traditions. To request an order form, call Get recipes, cooking tips and view Get recipes, promotions and entertaining us toll free at (888) 469-7809 or write, instructional videos ideas for many of our brands including your name, street address, city, state, zip code and phone number BoxTops4Education.com (including area code) to: Sign up to support your school 15%% 27% 30% EatBetterAmerica.com Th is Report is Printed on Recycled Paper 2011 General Mills Holiday Gift Box 21% 29% 58% Simple ways to eat healthy, including Department 7803 healthier versions of your favorite recipes 10% 18% 85% P.O. Box 5011 Stacy, MN 55078-5011 QueRicaVida.com $10.2 Billion $2.9 Billion $1.8 Billion $1.2 Billion Recipes and nutritional information for Or you can place an order online at: 23% Big G Cereals 31%% Europe 58% B akeries & National 85% Cereal Partners Hispanic consumers Restaurant Accounts Worldwide (CPW) GMIHolidayGift Box.com 21%% Meals 29% Asia/Paciﬁc Tablespoon.com 18% Pillsbury USA 27%% Canada 30% Foodservice Distributors 15% Häagen-Dazs Japan

Fiscal Year Ended (In millions, except per share and return on capital data) May 29, 2011 May 30, 2010 Change Net Sales $ 14,880 $ 14,636 + 2% Segment Operating Proﬁ t a 2,946 2,840 + 4 Net Earnings Attributable to General Mills 1,798 1,530 + 18 Diluted Earnings per Share (EPS) 2.70 2.24 + 20 Adjusted Diluted EPS, Excluding Certain Items Aﬀ ecting Comparabilityb 2.48 2.30 + 8 Return on Average Total Capitala 13.7% 13.8% - 10 basis pts. Average Diluted Shares Outstanding 665 683 - 3 Dividends per Share $ 1.12 $ 0.96 + 17

Net Sales Segment Operating Proﬁta Adjusted Diluted Earnings per Shareb Dollars in millions Dollars in millions Dollars

11 14,880 11 2,946 11 14,8802.48 10 14,636 10 2,840 10 2.3014,636 09 14,556 09 2,624 09 1.99 14,556 08 13,548 08 2,394 08 1.76 13,548 07 12,304 07 2,273 07 1.59 12,304

Average Diluted Shares Outstanding Dividends per Share Return on Average Total Capitala Shares in millions Dollars Percent

11 665 11 1.12 11 13.7 10 683 10 0.96 10 13.8 09 687 09 0.86 09 12.3 08 694 08 0.78 08 11.7 07 720 07 0.72 07 11.0

a See page 85 for discussion of non-GAAP measures. b Results exclude certain items aﬀ ecting comparability. See page 85 for discussion of non-GAAP measures.

Annual Report 2011 1 To Our Shareholders

Ken Powell Chairman and Chief Executive Oﬃ cer

I’m pleased to report that General Mills achieved good and natural products. Sales for Big G ready-to-eat cereals sales and earnings growth in fi scal 2011. Our results met declined slightly, along with sales for the U.S. cereal category the key targets we had set for the year, and represented overall. But we maintained our share of cereal category sales performance consistent with our long-term growth model. in ACNielsen-measured channels, and our market share Th e company’s progress in 2011 extended a strong record grew on an all-channel basis. of business growth in recent years. Our Bakeries and Foodservice segment, which competes Net sales for the fi scal year ended May 29, 2011, grew primarily in U.S. channels for food eaten away from home, 2 percent to reach $14.9 billion. Segment operating profi t soundly outpaced industry trends. Net sales for this busi- rose 4 percent to exceed $2.9 billion. And diluted earnings ness segment grew 6 percent to $1.8 billion. Th is included per share (EPS) increased 20 percent to $2.70. Th e EPS 3 percent growth in sales to foodservice distributors and an comparison included changes in mark-to-market valuation 11 percent increase in sales to convenience store customers. of certain commodity positions in both years, as well as Segment operating profi t rose 16 percent to exceed the certain tax items that resulted in a net earnings benefi t in $300 million mark for the fi rst time in company history. 2011 and a charge in 2010. Adjusted diluted earnings per Our International segment results were strong across share, which excludes these items from both years, grew the board. Net sales rose 7 percent to nearly $2.9 billion. 8 percent to $2.48. Excluding the impact of foreign currency exchange rates, We were generally pleased with these results because constant-currency net sales grew in each of the four regions fi scal 2011 presented a truly challenging environment for where we compete, including gains of 7 percent in Europe food manufacturers. Widespread price promotion took and 9 percent in the Asia/Pacifi c region. International place across the food industry for much of last year. Costs segment operating profi t totaled $291 million, up sharply for food ingredients and energy, which had moderated in from the prior year that included negative eff ects from the prior year, began rising again and the cost infl ation Venezuelan currency devaluation and other foreign exchange accelerated as the year went on. In addition, consumers in items. Excluding foreign exchange eff ects, profi t still grew at developed markets remained cautious in a still uncertain a double-digit rate. economic environment. Results for our U.S. Retail segment Our Cereal Partners Worldwide (CPW) and Häagen- refl ected these challenges, with net sales of $10.2 billion Dazs Japan (HDJ) joint ventures contributed a combined essentially matching year-ago levels and operating profi t of $96 million in aft er-tax earnings in 2011. Combined $2.3 billion declining 2 percent from record performance CPW and HDJ net sales, which are not consolidated in in 2010. However, we posted sales increases on a number General Mills’ results, rose 4 percent led by higher sales of key businesses, including Nature Valley and Fiber One for CPW. grain snacks, Progresso ready-to-serve soup, Old El Paso Mexican foods, and our Small Planet Foods line of organic

2General Mills Total Returns to Shareholders Worldwide Net Sales* Percent growth, stock price change plus reinvested dividends Dollars in millions

Fiscal 2011 May 2007–May 2011 Compound annual growth 11 16,102 14 10 10 15,816 23 7 09 15,689 25 -1 08 14,639 GIS 07 13,289 S&P Packaged Foods Index Consolidated07 Net Sales S&P 500 Index Our Share of Ongoing Joint Venture Net Sales

* See page 85 of our 2011 Annual Report for discussion of non-GAAP measures.

Net Sales Performance As shown in the chart above, over the past four fi scal years General Mills has delivered a double-digit compound annual Operating Division/Segment 2011 Net Sales % Change return to shareholders — superior performance in a volatile Small Planet Foods + 13 and challenging period for the equity market overall. International Segment* + 7 As we enter our next phase of growth, we are targeting Bakeries and Foodservice Segment + 6 continued good sales and earnings performance in the years Snacks + 5 ahead. It seems clear that food manufacturers will have to Yoplait + 1 contend with higher — and more volatile — input costs. In our Meals - 1 case, total supply chain cost infl ation was 4 percent in 2011, Big G Cereals - 2 and we’ve estimated 10 to 11 percent infl ation in our plans for 2012. Th ere are multiple factors contributing to this Pillsbury USA - 2 infl ationary pressure, but the fundamental driver is growth Baking Products - 4 of emerging markets and their increased demand for food *Does not include the impact of foreign currency translation. See page 86 of our 2011 Annual Report for a reconciliation to reported results. ingredients and energy.

In total, General Mills results in fi scal 2011 represented We adopted a new business model several years ago to continuing growth on top of strong performance in recent help us manage higher infl ation. Th is model begins with years. Since 2007, General Mills net sales have grown at Holistic Margin Management (HMM), our discipline of using a 5 percent compound rate. Our segment operating profi t productivity, mix and price realization to off set infl ation has grown even faster, compounding at 7 percent per year. and protect our gross margin. A strong gross margin gives And our adjusted diluted EPS (this measure excludes certain us the ability to fund continued high levels of investment items aff ecting comparability of results) has increased at a in product improvements, new product development, sales 12 percent compound rate. capabilities and consumer marketing. Th ese activities fuel net sales growth and ultimately, growth in earnings. We Our good fi nancial performance was refl ected in price believe this HMM-driven business model has worked very appreciation for General Mills stock in fi scal 2011. In addition, well in recent years. As you can see in the charts on page 5, dividends per share grew 17 percent last year. In total, stock it enabled us to protect and expand gross margin over price appreciation plus dividends generated a 14 percent a fi ve-year period when our input cost infl ation averaged return to our shareholders for the year. Th is lagged the very between 4 and 5 percent. We expect HMM to help us strong returns posted by our peer group and the broader achieve continuing high-quality sales and earnings growth market in 2011. However, our 14 percent return followed a as we go forward. 43 percent return to GIS shareholders in the previous year.

Annual Report 2011 3 A Selection of Our New Products Launched in 2011

We remain committed to our long-term growth model, On July 1, 2011, we completed the purchase of a controlling which is outlined in the following table: interest in Yoplait SAS, headquartered in France. Sodiaal, the leading French dairy cooperative, will hold the remaining General Mills Long-term Growth Model interest. We intend to work together with Sodiaal to build the Yoplait brand in existing markets and expand to new Growth Factor Compound Annual Growth Target markets worldwide. We plan to consolidate this business, Net Sales Low single-digit which will increase our reported sales and operating profi t Segment Operating Profi t Mid single-digit in 2012. We expect the 2012 EPS contribution from Yoplait’s Earnings per Share High single-digit operating results will be off set by some incremental amortization expense and by the eff ect on EPS of our decision to Dividend Yield 2 to 3 percent buy back fewer shares this year to pay for this acquisition Total Return to Shareholders Double-digit with cash. Beyond 2012, we anticipate that Yoplait will be an important source of earnings growth for General Mills. Our targets for fi scal 2012 diff er from this long-term model In fact, international business expansion is one of our fi ve due to two primary factors: a sharp increase in estimated key growth drivers. Th e other four are: partnering eff ec- input costs, and our acquisition of a controlling interest tively with our retail and foodservice customers; building in the international Yoplait yogurt business. Our business our brands through strong levels of consumer marketing; plans before any impact from the Yoplait acquisition assume protecting and expanding margins; and generating strong 10 to 11 percent input cost infl ation for fi scal 2012, driven by levels of product innovation. Of these, innovation is the higher costs for food ingredients and energy. We expect our most powerful lever: It drives growth for our categories HMM discipline of productivity, mix management and price and growth in our sales, earnings and market share. realization to off set most, but not all, of this cost pressure. We’ve got a high level of innovation planned across our busi- As a result, we are estimating a decline in our gross margin nesses in 2012. And our innovation and marketing eff orts for the year, and we expect segment operating profi t growth are focused on four big and growing consumer groups: the and earnings per share growth will be below our long-term millennial generation, ages 17 to 34; the baby boomer gener- targets. Net sales are expected to grow at a mid single-digit ation, ages 50 and over; U.S. multicultural consumers; and rate in 2012, driven by price realization and a strong lineup rising middle-class consumers in emerging global markets. of new products and marketing initiatives. You can read about many of our product and marketing initiatives in the following pages of this report.

4General Mills Input Cost Trend Gross Margin Percent Percent of net sales

11 4 11 40.0 Our input cost infl ation has averaged 4 to 5 percent over the past fi ve years. With our -3 10 10 39.6 Holistic Margin Management eff orts, we’ve 09 9 09 35.6 been able to off set this cost infl ation and 08 7 08 35.5 expand our gross margin over this time. 07 4 07 35.9

Includes raw materials, energy, labor expense, carrier Net sales less cost of sales rates, and storage and handling

Leading Market Positions in U.S. Retail Measured Outlets General Mills’ performance is the product of our 35,000 talented and dedicated employees around the world, and I Fiscal 2011 Category Our Our want to close this letter with my sincere thanks to General Retail Sales Dollar Branded Mills people for all that you do to build our great company. Category ($ in millions) Share % Rank Let me also acknowledge two senior leaders who announced Ready-to-eat Cereal 6,300 31 2 their retirements during 2011. Chris Shea, Executive Vice Refrigerated Yogurt 4,300 31 1 President, External Relations, and Rick Lund, Vice President, Controller and Principal Accounting Offi cer, made important Frozen Vegetables 2,400 18 2 and lasting contributions to General Mills, and we thank Mexican Aisle Products 1,800 18 1 them very much for their service. Grain Snacks 1,800 31 1 I’d also like to thank you for your investment in General Dry Packaged Dinners 1,400 21 2 Mills. We appreciate your confi dence in our business and Ready-to-serve Soup 1,400 36 2 its prospects, and we look forward to reporting on our Refrigerated Dough 1,400 70 1 continuing growth. Dessert Mixes 1,300 40 1 Frozen Hot Snacks 1,100 24 2 Fruit Snacks 500 50 1 Source: ACNielsen measured outlets, which represent approximately 60 percent of our U.S. retail sales Kendall J. Powell We enter 2012 confi dent that we are positioned for another Chairman and Chief Executive Offi cer year of good growth. Our brands hold leading market August 1, 2011 share positions in large and attractive food categories. Our categories are on-trend with consumer demand for great- tasting, healthy and convenient foods, so these categories are growing in markets all around the world. And our business plans for 2012 include a high level of product news and marketing innovation, designed to fuel growth for our categories and for our brands.

Annual Report 2011 5 WE HAVE A PORTFOLIO FOR GLOBAL

Whether it’s a bowl of Cheerios in Barcelona, a cup of Yoplait yogurt General Mills Pro Forma Net Sales* in Columbus or a Nature Valley bar in Brisbane, we oﬀ er great-tasting, nutritious and convenient foods for consumers around the world. 22% Our brands are consumer favorites and hold strong share positions in a 40% wide variety of growing food categories. For example, we are a leading player in the $24 billion global ready-to-eat cereal category. Häagen-Dazs is the world’s best-selling brand of ice cream. And Yoplait is the second- 16% largest brand in the $65 billion global yogurt category.

We market our brands in a variety of U.S. retail outlets from traditional 4% 11% grocery stores to convenience stores. We also compete in foodservice 7% channels such as restaurants, store bakeries and school cafeterias. Our 22%% Ready-to-eat Cereal brands are available internationally in outlets ranging from hypermarkets 16% Refrigerated Yogurt 11% Convenient Meals to Häagen-Dazs ice cream shops. 7%% Wholesome Snack Bars 4% Super-premium Ice Cream Th e demand for wholesome, convenient and great-tasting foods is 40%% All Other Businesses growing around the world. Yet per capita consumption of foods such *Fiscal 2011 U.S. net sales plus fi scal 2011 as cereal and yogurt is still relatively low in many markets. So we see International net sales at estimated foreign currency translation rates plus fi scal 2012 tremendous opportunities to grow our businesses in both developed and Yoplait International $1.2 billion pro forma emerging markets. Our brands are well-positioned to meet the needs of sales plus fi scal 2011 proportionate share of joint venture revenues. consumers everywhere, giving us a portfolio for global growth.

6General Mills OUR FIVE GLOBAL BUSINESSES ARE GROWTH OPPORTUNITIES FOR US

READY-TO-EAT SUPER-PREMIUM CONVENIENT MEALS WHOLESOME REFRIGERATED CEREAL ICE CREAM SNACK BARS YOGURT Old El Paso Mexican We market cereal Our Häagen-Dazs foods, Wanchai Ferry Nature Valley and Our Yoplait yogurt through our wholly Cascadian Farm granola brand leads the U.S. brand is sold in more frozen dim sum and owned businesses bars, Fiber One bars, yogurt market. As than 80 countries, entrées, Progresso soup, in North America including China. and Lärabar energy of July 2011, we and through Cereal and Helper dinner bars are nutritious now market Yoplait Partners Worldwide, Pro Forma Net Sales:* mixes give consumers snack choices. yogurt internationally our joint venture $750 million great options for a in partnership with Pro Forma Net Sales:* with Nestlé. quick and easy meal. Sodiaal, a dairy $1.1 billion cooperative in France. Pro Forma Net Sales:* Pro Forma Net Sales:* $3.8 billion $1.9 billion Pro Forma Net Sales:* $2.8 billion

* See page 85 for discussion of non-GAAP measures.

Annual Report 2011 7 GROWTH PROSPECTS FOR OUR PRODUCTS AROUND THE WORLD

Today’s consumers are looking and global net sales for our snack for foods that provide health and bars increased 11 percent in 2011 in wellness benefi ts. constant currency. In the U.S., retail sales for our Fiber One snack bars Health news is driving growth on many exceeded $140 million in measured of our largest cereal brands. All Big G channels alone. Th is summer, we added cereals contain at least 8 grams of a 90-calorie brownie to the line. And whole grain per serving, making we’re launching two new fl avors of General Mills the leading source of Cascadian Farm organic trail mix bars. whole grain cereal at breakfast in the Lärabar energy bars are made with Our Bakeries and Foodservice segment U.S. Five fl avors of Chex cereal are now all natural ingredients — primarily fruit is the leading provider of cereals for gluten-free, contributing to 12 percent and nuts. Retail sales for this line grew school breakfast programs, delivering retail sales growth for the Chex fran- 77 percent in 2011 as we expanded over 1 million servings of whole chise in 2011. Retail sales for distribution in more retail outlets. And grain per day in K-12 schools across MultiGrain Cheerios rose 8 percent in the U.S. Our Pillsbury Mini Pancakes Wheaties Fuel bars contributed to 2011 on strong weight manage- and French Toast give foodservice 11 percent net sales growth for our ment messaging. And we launched an operators a quick and easy way to products in convenience stores in 2011. 80-calorie version of Fiber One cereal prepare individual servings of kids’ this summer. Net sales for Cereal Our yogurt portfolio off ers great- breakfast favorites, and each serving Partners Worldwide, our joint venture tasting, good-for-you options. Yoplait contains 16 grams of whole grain. with Nestlé, grew 2 percent in 2011 on Original contains 50 percent of the Studies show that kids who eat a constant-currency basis led by brands Daily Value of calcium per serving. breakfast tend to perform better in with health news such as Fitness® and Th at’s twice the amount of other school, so we expect the number of Nesquik® made with whole grains. yogurts. Yoplait Greek competes in the school breakfast programs will grow fastest-growing U.S. yogurt segment. in the years ahead. Our snack bar business is growing at a healthy clip. Nature Valley granola bars are available in nearly 80 countries,

8General Mills It has a creamier texture and twice the Global Wholesome Snack Bars Cereal Consumption per Capita protein of regular yogurt varieties. In Net Sales Growth* Annual kilograms per person Constant currency, dollars in millions, February, we acquired the Mountain percent growth High brand. Th is all-natural yogurt is currently distributed in the western 11 11 United Kingdom 6.3 U.S. and is a strong addition 10 9 Canada 4.2 to our portfolio. 09 18 Australia 4.1 We’ve made health improvements on 08 26 United States 3.9 many of our product lines. In 2011, *U.S. net sales plus International net sales at Mexico 2.7 estimated foreign currency translation rates we added gluten-free Bisquick mix France 1.8 to our 300 gluten-free oﬀ erings. We Poland 1.2 lowered sodium levels in a variety of Russia 0.3 Wanchai Ferry products in China, Brazil 0.2 Old El Paso dinner kits in Europe, Australia and Canada, and many Green Turkey 0.1 Giant vegetable products in the U.S. Southeast Asia 0.01

And we’re reducing sodium and sugar Source: Euromonitor 2010 levels in Big G cereals. In the U.S. alone, Th e world is an emerging market for more than 60 percent of our sales in ready-to-eat cereal. Th e UK, Canada, 2011 came from products with health Australia and the United States account improvements. for 54 percent of cereal consumption, yet they represent just 6 percent of the We’ll continue to focus on the health world’s population. We’ll bring high levels proﬁ le of our products, delivering more of product innovation and consumer nutritious food options for consumers marketing to help grow cereal around everywhere. the world.

Annual Report 2011 9 AND CONVENIENT MEAL SOLUTIONS FOR CONSUMERS EVERYWHERE

We help consumers around the expand this business to Th ailand, and world with convenient answers to we see opportunities for Wanchai the question, “What’s for dinner?” Ferry in additional countries in Asia. Old El Paso dinner kits bring families In the U.S., our Wanchai Ferry together around the world for a fun and and Macaroni Grill® dinners for two easy-to-make Mexican meal. Th is brand compete in the $1.4 billion frozen is available in more than 60 markets, entrée category. Retail sales for these and constant-currency sales grew restaurant-quality entrées grew at a 4 percent to nearly $700 million in double-digit pace in 2011, exceeding fi scal 2011. We continue to develop $60 million. We have new varieties more convenient, better-for-you options. coming in 2012, including Grilled EatBetterAmerica.com For example, we added to our Healthy Chicken Alfredo and Chicken Penne Fiesta line in Australia, introduced the Primavera fl avors of Macaroni reduced-sodium Smart Fiesta line in Grill® entrées. Canada, and recently launched a fi sh Retail sales for Progresso ready-to- taco kit in Europe. serve soup exceeded $500 million in In China, dumplings and dim sum are measured channels alone in fi scal 2011. dinner favorites. Our line of Wanchai Watch for new fl avors of our Rich & Ferry frozen dim sum makes them Hearty and traditional soup varieties QueRicaVida.com convenient. Last year, we added noodle coming this summer. varieties to the line, contributing to Green Giant vegetables are a nutri- 33 percent sales growth for the brand tious way to round out a meal. In the in China in fi scal 2011. In 2012, we’ll U.S., our line of Green Giant Valley Fresh Steamers makes garden-fresh

10 General Mills vegetables ready in seconds in the Old El Paso Global Net Sales Growth* microwave. In Europe, Green Giant Constant currency, dollars in millions, percent growth sales are growing at a low single-digit Consumers today look online for pace as consumers enjoy delicacies 11 4 meal solutions. Our websites, like such as white asparagus and hearts 10 6 Tablespoon.com and EatBetterAmerica. of palm. 09 10 com, provide recipe ideas and money- Dinner isn’t complete without dessert. 08 5 saving coupons for a variety of products. And we’re going one step Our Betty Crocker dessert mixes are further, sending consumers coupons available from the U.S. to the UK to Australia and generate more than Wanchai Ferry Global Net Sales Growth* directly to their smartphones. On Constant currency, dollars in millions, QueRicaVida.com, the website for our $500 million in retail sales in the percent growth Hispanic marketing initiative, recipes U.S. alone. In 2012, we’re introducing 11 27 are now available through an iPad® Betty Crocker Fun da-middles ﬁ lled application. Our spending on digital cupcake mixes in the U.S. and a line 10 56 marketing initiatives has grown of scone mixes in Australia. 09 26 nearly 40 percent over the past three As disposable incomes rise around the 08 46 years in the U.S., and we’ll continue world and consumers lead increasingly *U.S. net sales plus International net sales at to develop new marketing tools using busy lifestyles, the demand for quick estimated foreign currency translation rates this dynamic medium. and easy-to-prepare foods will grow. Our broad portfolio of well-known brands positions us well to leverage this growth in the years ahead.

Annual Report 2011 11 FOOD CHOICES IN GROWING, GLOBAL CATEGORIES

Above all else, consumers around the Delicious baked goods are easy to make world want foods that taste great. with Pillsbury refrigerated dough. In the U.S., category retail sales in What could be better than a rich, measured channels total $1.4 billion. creamy scoop of Häagen-Dazs ice Crescent rolls led growth for the cream? We market this super-premium Pillsbury brand in 2011 with retail ice cream in more than 80 countries sales up 8 percent, due in part to a outside of North America. Constant- strong advertising campaign empha- currency sales for the brand grew sizing their great homemade taste. 7 percent in 2011, and we’re intro- Pillsbury Sweet Moments bite-sized ducing more new varieties around the desserts are ready to eat from the world. In Europe, we launched Häagen- Yogurt is a nutritious, convenient, refrigerator case. Th is summer, we Dazs Secret Sensations, a serving low-calorie food that tastes great. added cheesecake versions to this line. of ice cream with a crème brulee or So it’s no wonder yogurt category chocolate fondant center. And in Japan, Pillsbury Egg Scrambles and Grands! sales total $65 billion worldwide. we’re introducing Crepe Glacé, creamy Egg Sandwiches are two new break- Mountain High all-natural yogurt Häagen-Dazs ice cream wrapped in fast options just arriving in the frozen is currently available in the western a soft crepe. In China, our more than foods aisle. Egg Scrambles combine U.S. Yoplait is a leading yogurt 160 ice cream shops are a big hit with eggs, potatoes, ham or sausage with brand, available in more than 70 consumers, and sales of mooncakes, an Green Giant vegetables. Grands! Egg countries. Per capita consumption ice cream delicacy available during the Sandwiches off er scrambled eggs, of yogurt is still quite low in many annual Mid-Autumn Festival, continue cheese and meat inside a fl uff y biscuit. international markets, and we see to grow every year. We’re bringing All six varieties of Egg Scrambles and plenty of opportunities to bring the Häagen-Dazs to new markets with Egg Sandwiches are 300 calories or great taste of Yoplait to consumers everywhere. two shops now open in India, and we less per serving. recently opened a shop in Cairo. Our Yoplait Smoothie mixes also are in the frozen section. Th is blend of yogurt

12 General Mills and fresh fruit provides an easy way Häagen-Dazs Ice Cream Net Sales Growth* Yogurt Consumption per Capita to make a frozen yogurt drink — just Constant currency, dollars in millions, Annual kilograms per person percent growth add milk and blend. Try our newest fl avor: Chocolate Banana. Our yogurt 11 7 France 17.8 sales in foodservice channels increased 10 -3 Ireland 11.5 6 percent in 2011 as we increased 09 2 Canada 9.9 distribution in more foodservice outlets. 08 8 United Kingdom 9.1 Our ParfaitPro yogurt gives cafeterias and restaurants a quick and easy way *International net sales at estimated foreign currency Australia 8.5 translation rates; includes our share of joint venture to make delicious yogurt parfaits. net sales United States 5.9 Brazil 5.2 We also have a great lineup of savory snack products. New Chex Mix Russia 3.7 Gourmet Blends off er culinary-inspired China 2.3 fl avor combinations, such as Italian India 0.3 Herb & Parmesan. Retail sales for Indonesia 0.2 Totino’s Pizza Rolls grew 4 percent in Source: Euromonitor 2010 2011 in the $1.1 billion U.S. hot snacks category as teens enjoy these fast and easy aft er-school snacks. Th is summer, we’ll introduce Totino’s Pizza Stuff ers, a sandwich-sized version of Pizza Rolls, ready in minutes in the microwave. From sweet to salty, creamy to crunchy, our product portfolio delivers on a variety of taste preferences. We see great opportunities to expand our products to satisfy a whole host of tastes around the world. Annual Report 2011 13 Investing to Fuel Growth

Capital Expenditures Advertising and Media Expense Research and Development Expense Dollars in millions Dollars in millions Dollars in millions

11 649 11 844 11 235 10 650 10 909 10 218 09 563 09 732 09 208 08 522 08 587 08 205 07 460 07 491 07 191 07 491

Our businesses are strong generators budget, but our investments in new Beyond these initiatives to support of earnings and cash. We reinvest digital media, and in vehicles targeted ongoing growth of our business, we some of this into research and devel- to U.S. multicultural consumers are returned roughly $1.9 billion to share- opment, consumer marketing, and growing at the fastest rates. holders in 2011 through dividends and capital projects that support growth repurchase of General Mills common Capital expenditures in 2011 totaled and cost-savings opportunities we stock. Shareholder dividends grew $649 million, or just over 4 percent see in our businesses. We occasion- 17 percent in 2011, and have increased of net sales. Th ese capital projects ally make acquisitions or divestitures by more than 50 percent since 2007. included new capacity for fast-growing to enhance the growth prospects for In June, we announced a further businesses such as grain snack bars our business portfolio. And we return 9 percent increase in the dividend, to a and yogurt, along with various cost- signifi cant cash to shareholders new annualized rate of $1.22 per share. savings projects companywide. through dividends and share repur- Our share repurchases reduced average chase activity. We enhanced our business portfolio diluted shares outstanding by nearly in 2011 with several acquisitions and Product quality and product innova- 3 percent in 2011. And since 2007, divestitures. We added the Mountain tion are the lifeblood of every branded we have reduced the average diluted High brand of all-natural yogurt to consumer foods company. In 2011, our share count by an average of 2 percent our U.S. yogurt business. In Australia, research and development expense per year. We expect our share repur- we added Pasta Master refrigerated totaled $235 million. Our investment in chase activity to be lower in 2012, as lasagna to our chilled pasta business. research and development has grown we will use cash to pay for the Yoplait We also divested a frozen baked goods steadily over recent years, averaging transaction. However, we plan to repur- line in Australia, and a small pie shell roughly 1.5 percent of net sales. chase at least enough shares to off set product line that was part of our the impact of stock option exercises We support our consumer brands with Bakeries and Foodservice segment. in 2012. And the goal of our ongoing strong levels of advertising investment. And during the fourth quarter of 2011, share repurchase program remains an Advertising and media expense in 2011 we announced a defi nitive agreement average annual net reduction in diluted totaled $844 million worldwide. Th at’s to purchase a controlling interest in shares outstanding of 2 percent. up more than 70 percent from our the international Yoplait business. investment level just four years ago. We completed this transaction on Television advertising still represents July 1, 2011. the largest share of our advertising

14 General Mills Our Corporate Citizenship: Th ink Global, Act Local

Fiscal 2011 General Mills Contributions Dollars in millions

$25

$65 $28

$118 Million From Minneapolis to Mumbai, our employees everywhere participate in our $65 Corporate Contributions $28 Product Donations “Th ink Global, Volunteer Local” initiative, $25 Foundation Grants helping to improve communities through their volunteering eﬀ orts.

Th rough our corporate citizenship nearly 5 million children across the initiatives, we work to make the U.S. Our Box Tops for Education world a better place. Our eff orts program also supports kids’ well-being include direct philanthropy, brand and education. Since its inception in philanthropy and volunteering 1996, this program has contributed around the world. more than $400 million to K-8 schools in the U.S. As a food company, we’re uniquely positioned to help in the battle against Our eff orts have international hunger. In 2011, we contributed reach, too. Th rough Partners in Food $28 million in product donations to Solutions, our employees are part- Feeding America®, the nation’s largest nering with food processors in Africa network of food banks, and other to produce high-quality, nutritious hunger relief agencies. We also began and aff ordable foods to help sustain contributing to the Global Food communities. And in India, the General Sustainable business practices are Banking Network, a nonprofi t organi- Mills Foundation has provided more critical to protecting and improving zation dedicated to creating, supplying than $100,000 in grants to promote our environment. We have a wide and strengthening food bank net- better health and nutrition and variety of initiatives — from water works around the world. Our goal is improved education in rural villages conservation to agricultural prac- to alleviate hunger and improve nutri- outside of Mumbai. tices — designed to protect our natural tional wellness in communities where resources and decrease our envi- It’s our people who make all of our phil- ronmental impact. Read about these General Mills does business. anthropic eff orts successful. More than initiatives and more in our 2011 We’re also improving communi- 80 percent of our U.S. employees vol- Corporate Social Responsibility Report ties through foundation grants. Our unteer in their communities. Th rough and Summary Report available on Champions for Healthy Kids program our “Th ink Global, Volunteer Local” CSR.GeneralMills.com. is now in its 10th year of providing initiative, we’ve marshaled the eff orts grants to organizations that promote of our employees around the world to and support healthy lifestyles for kids. make a diff erence where they live and In total, we’ve contributed more than work. Th at’s a philosophy we embrace $19 million to youth nutrition and as individuals, and as a company, as fi tness programs that have involved we strive to make the world a better place for all.

Annual Report 2011 15 Board of Directors (as of August 1, 2011)

Bradbury H. Anderson2, 4 William T. Esrey1, 3* Judith Richards Hope1*, 5 Steve Odland3, 4 Robert L. Ryan1, 3 Retired Chief Executive Chairman of the Board, Distinguished Visitor Adjunct Professor, Florida Retired Senior Vice Offi cer and Vice Chairman, Spectra Energy Corp. from Practice and Atlantic University School President and Chief Best Buy Co., Inc. (natural gas infrastructure Professor of Law, of Business and Former Financial Offi cer, (electronics retailer) provider) and Chairman Georgetown University Chairman of Medtronic, Inc. Emeritus, Sprint Nextel Law Center the Board and Chief (medical technology) R. Kerry Clark1, 2 Corporation Executive Offi cer, Retired Chairman and (telecommunications Heidi G. Miller 3, 5 Offi ce Depot, Inc. Dorothy A. Terrell4, 5* Chief Executive Offi cer, systems) President, JPMorgan (offi ce products retailer) Managing Director, Cardinal Health, Inc. International, FirstCap Advisors (medical services and Raymond V. Gilmartin2, 4* JPMorgan Chase & Co. Kendall J. Powell (venture capital) supplies) Adjunct Professor, (banking and fi nancial Chairman of the Board and Harvard Business School services) Chief Executive Offi cer, Board Committees Paul Danos1, 5 and Retired Chairman, General Mills, Inc. 1 Audit Dean, Tuck School President and Chief Hilda Ochoa- 2 Compensation of Business and Executive Offi cer, Brillembourg3, 5 Michael D. Rose2*, 4 3 Finance Laurence F. Whittemore Merck & Company, Inc. Founder, President and Chairman of the Board, 4 Corporate Governance Professor of Business (pharmaceuticals) Chief Executive Offi cer, First Horizon National 5 Public Responsibility Administration, Strategic Investment Corporation * D enotes Committee Chair Dartmouth College Group (investment (banking and fi nancial management) services)

Senior Management (as of August 1, 2011)

Mark W. Addicks John R. Church John T. Machuzick Jonathon J. Nudi Christi L. Strauss Senior Vice President; Senior Vice President, Senior Vice President; Vice President; Senior Vice President; Chief Marketing Offi cer Supply Chain President, President, Snacks Chief Executive Offi cer, Bakeries and Foodservice Cereal Partners Worldwide Samir Behl Michael L. Davis Rebecca L. O’Grady Vice President; Senior Vice President, Luis Gabriel Merizalde Vice President; Anton V. Vincent President, Global Human Resources Vice President; President, Yoplait Vice President; Asia/Pacifi c Region President, Europe, President, Baking Products David E. Dudick Sr. Middle East and Africa Shawn P. O’Grady Y. Marc Belton Senior Vice President; Senior Vice President; Sean N. Walker Executive Vice President, President, Michele S. Meyer President, Consumer Vice President; Global Strategy, Growth U.S. Channels Sales Vice President; Foods Sales President, Latin America and Marketing Innovation President, and South Africa Peter C. Erickson Small Planet Foods Christopher D. O’Leary Richard L. Best Senior Vice President, Executive Vice President; Keith A. Woodward Senior Vice President, Innovation, Technology Donal L. Mulligan Chief Operating Offi cer, Senior Vice President, Global Business Solutions and Quality Executive Vice President; International Financial Operations Chief Financial Offi cer Peter J. Capell Ian R. Friendly Roderick A. Palmore Jerald A. Young* Senior Vice President, Executive Vice President; James H. Murphy Executive Vice President; Vice President; International Wholesome Chief Operating Offi cer, Senior Vice President, General Counsel; Controller Snacks Strategic U.S. Retail Global Strategy and Chief Compliance and Risk Business Unit Growth Management Offi cer Michael P. Zechmeister Jeff rey L. Harmening and Secretary Vice President; Gary Chu Senior Vice President; Kimberly A. Nelson Treasurer Senior Vice President; President, Big G Cereals Senior Vice President, Kendall J. Powell President, Greater China External Relations; Chairman of the Board and David P. Homer President, Chief Executive Offi cer *Eff ective August 15, 2011 Juliana L. Chugg Senior Vice President; General Mills Foundation Senior Vice President; President, Ann W. H. Simonds President, Meals General Mills Canada Senior Vice President; President, Pillsbury USA

16 General Mills Financial Review

Contents Financial Summary 18 Management’s Discussion and Analysis of Financial Condition and Results of Operations 19 Reports of Management and Independent Registered Public Accounting Firm 43 Consolidated Financial Statements 45 Notes to Consolidated Financial Statements 1 Basis of Presentation and Reclassifi cations 49 2 Summary of Signifi cant Accounting Policies 49 3 Acquisitions and Divestitures 53 4 Restructuring, Impairment, and Other Exit Costs 53 5 Investments in Joint Ventures 55 6 Goodwill and Other Intangible Assets 56 7 Financial Instruments, Risk Management Activities and Fair Values 57 8 Debt 63 9 Noncontrolling Interests 64 10 Stockholders’ Equity 65 11 Stock Plans 66 12 Earnings per Share 69 13 Retirement Benefi ts and Postemployment Benefi ts 69 14 Income Taxes 77 15 Leases and Other Commitments 79 16 Business Segment and Geographic Information 79 17 Supplemental Information 81 18 Quarterly Data 82 Glossary 83 Non-GAAP Measures 85 Total Return to Stockholders 88

Annual Report 2011 17 Financial Summary

At the beginning of fi scal 2011, we revised the classifi cation of certain revenues and expenses to better align our income statement line items with how we manage our business. We have revised the classifi cation of amounts previously reported to conform to our fi scal 2011 presentation. Th ese revised classifi cations had no eff ect on previously reported net earnings attributable to General Mills or earnings per share. See Note 1 to the Consolidated Financial Statements in this report for further details of the reclassifi cations. Th e following table sets forth selected fi nancial data for each of the fi scal years in the fi ve-year period ended May 29, 2011:

Fiscal Year In Millions, Except Per Share Data, Percentages and Ratios 2011 2010 2009 (a) 2008 2007 Operating data: Net sales $ 14,880.2 $ 14,635.6 $ 14,555.8 $ 13,548.0 $ 12,303.9 Gross margin (b) 5,953.5 5,800.2 5,174.9 4,816.2 4,412.7 Selling, general, and administrative expenses 3,192.0 3,162.7 2,893.2 2,566.0 2,314.5 Segment operating profi t (c) 2,945.6 2,840.5 2,624.2 2,394.4 2,273.0 Divestitures (gain) (17.4) — (84.9) — — Aft er-tax earnings from joint ventures 96.4 101.7 91.9 110.8 72.7 Net earnings attributable to General Mills 1,798.3 1,530.5 1,304.4 1,294.7 1,143.9 Depreciation and amortization 472.6 457.1 453.6 459.2 417.8 Advertising and media expense 843.7 908.5 732.1 587.2 491.4 Research and development expense 235.0 218.3 208.2 204.7 191.1 Average shares outstanding: Basic 642.7 659.6 663.7 665.9 693.1 Diluted 664.8 683.3 687.1 693.8 720.4 Earnings per share: Basic $ 2.80 $ 2.32 $ 1.96 $ 1.93 $ 1.65 Diluted $ 2.70 $ 2.24 $ 1.90 $ 1.85 $ 1.59 Diluted, excluding certain items aff ecting comparability (c) $ 2.48 $ 2.30 $ 1.99 $ 1.76 $ 1.59 Operating ratios: Gross margin as a percentage of net sales 40.0% 39.6% 35.6% 35.5% 35.9% Selling, general, and administrative expenses as a percentage of net sales 21.5% 21.6% 19.9% 18.9% 18.8% Segment operating profi t as a percentage of net sales (c) 19.8% 19.4% 18.0% 17.7% 18.5% Eff ective income tax rate 29.7% 35.0% 37.1% 34.0% 33.0% Return on average total capital (b) (c) 13.7% 13.8% 12.3% 11.7% 11.0% Balance sheet data: Land, buildings, and equipment $ 3,345.9 $ 3,127.7 $ 3,034.9 $ 3,108.1 $ 3,013.9 Total assets 18,674.5 17,678.9 17,874.8 19,041.6 18,183.7 Long-term debt, excluding current portion 5,542.5 5,268.5 5,754.8 4,348.7 3,217.7 Total debt (b) 6,885.1 6,425.9 7,075.5 6,999.5 6,206.1 Noncontrolling interests 246.7 245.1 244.2 246.6 1,139.2 Stockholders’ equity 6,365.5 5,402.9 5,172.3 6,212.2 5,318.7 Cash fl ow data: Net cash provided by operating activities $ 1,526.8 $ 2,181.2 $ 1,828.2 $ 1,729.9 $ 1,751.2 Capital expenditures 648.8 649.9 562.6 522.0 460.2 Net cash used by investing activities 715.1 721.2 288.9 442.4 597.1 Net cash used by fi nancing activities 936.6 1,503.8 1,404.5 1,093.0 1,398.1 Fixed charge coverage ratio 7.03 6.42 5.33 4.91 4.51 Operating cash fl ow to debt ratio (b) 22.2% 33.9% 25.8% 24.7% 28.2% Share data: Low stock price $ 33.57 $ 25.59 $ 23.61 $ 25.72 $ 24.64 High stock price 39.95 36.96 35.08 31.25 30.56 Closing stock price 39.29 35.62 25.59 30.54 30.08 Cash dividends per common share 1.12 0.96 0.86 0.78 0.72 Number of full- and part-time employees 35,000 33,000 30,000 29,500 28,580

(a) Fiscal 2009 was a 53-week year; all other fi scal years were 52 weeks. (b) See Glossary on page 83 of this report for defi nition. (c) See page 85 of this report for our discussion of this measure not defi ned by generally accepted accounting principles. Management’s Discussion and Analysis of Financial Conditions and Results of Operations

EXECUTIVE OVERVIEW We achieved the following related to our six key operating objectives for fi scal 2011: We are a global consumer foods company. We develop • Net sales growth of 2 percent was primarily driven by distinctive value-added food products and market them volume gains in our International segment and net price under unique brand names. We work continuously to realization and mix. improve our established products and to create new • We achieved a 4 percent increase in total segment products that meet consumers’ evolving needs and pref- operating profi t despite renewed input cost infl ation. erences. In addition, we build the equity of our brands • Our gross margin as a percent of net sales was com- over time with strong consumer-directed marketing and parable to fi scal 2010. We took pricing actions on most innovative merchandising. We believe our brand-build- of our product lines in fi scal 2011 to partially off set the ing strategy is the key to winning and sustaining lead- increases in input costs. In addition, we continued to ing share positions in markets around the globe. focus on the other elements of our holistic margin man- Our fundamental business goal is to generate supe- agement (HMM) program, which include cost-savings rior returns for our stockholders over the long term. initiatives, marketing spending effi ciencies, and profi table We believe that increases in net sales, segment oper- sales mix strategies. ating profi t, earnings per share (EPS), and return on • We continued to invest in media and other brand- average total capital are the key measures of fi nancial building marketing programs. However, our total media performance for our businesses. See the “Non-GAAP and advertising spending decreased from fi scal 2010 lev- Measures” section on page 85 for a description of our els, which increased 24 percent versus fi scal 2009. discussion of total segment operating profi t, diluted • We grew our Bakeries and Foodservice segment oper- EPS excluding certain items aff ecting comparability and ating profi t, including a focus on higher-margin, branded return on average total capital, which are not defi ned by product lines within our most attractive foodservice cus- generally accepted accounting principles (GAAP). tomer channels. Our objectives are to consistently deliver: • We continued to grow our business in international • low single-digit annual growth in net sales; markets. We focused on our core platforms of ready-to- • mid single-digit annual growth in total segment eat cereal, super-premium ice cream, convenient meal operating profi t; solutions, and healthy snacking by introducing new • high single-digit annual growth in EPS; and products and investing to drive sales growth. • improvements in return on average total capital. Details of our fi nancial results are provided in the We believe that this fi nancial performance, coupled “Fiscal 2011 Consolidated Results of Operations” section with an attractive dividend yield, should result in long- below. term value creation for stockholders. We also return We expect slow improvement in the operating envi- a substantial amount of cash to stockholders through ronment for food companies around the globe. Although share repurchases and dividends. we believe the environment will remain challenging in For the fi scal year ended May 29, 2011, our net sales fi scal 2012, we expect to deliver another year of qual- grew 2 percent, total segment operating profi t grew ity growth. Excluding the eff ects of our acquisition of 4 percent and diluted EPS grew 20 percent, however interests in Yoplait S.A.S. and Yoplait Marques S.A.S., we our return on average total capital declined by 10 basis expect to achieve these results: points despite these positive earnings metrics. Diluted • We are targeting mid single-digit growth in net sales EPS excluding certain items affecting comparability primarily driven by net price realization, as our plans increased 8 percent from fi scal 2010 (see the “Non-GAAP assume a modest decline in pound volume. Measures” section on page 85 for our use of this measure • We have a strong lineup of consumer marketing, mer- and our discussion of the items aff ecting comparability). chandising, and innovation planned to support our lead- Net cash provided by operations totaled $1.5 billion in ing brands. We will continue to build our global platforms fi scal 2011, enabling us to increase our annual dividend in markets around the world, accelerating our eff orts in payments per share by 17 percent from fi scal 2010 and rapidly growing emerging markets. continue returning cash to stockholders through share • We are targeting low single-digit growth in total seg- repurchases, which totaled $1.2 billion in fi scal 2011. We ment operating profi t in fi scal 2012, as we expect our also made signifi cant capital investments totaling $649 HMM discipline of cost savings, mix management and million in fi scal 2011.

Annual Report 2011 19 price realization to largely off set an expected 10 to 11 Cost of sales increased $91 million in fi scal 2011 to percent increase in input costs. $8,927 million. Th is increase was driven by $157 million Our businesses generate strong levels of cash fl ows. higher net input costs and product mix and an $84 mil- We use some of this cash to reinvest in our business. lion increase attributable to higher volume, partially off - Our fi scal 2012 plans call for $670 million of expendi- set by a $95 million net decrease in cost of sales related tures for capital projects, excluding expenditures that to mark-to-market valuation of certain commodity posi- may be required for Yoplait S.A.S. On June 28, 2011, our tions and grain inventories as described in Note 7 to the Board of Directors approved a dividend increase to an Consolidated Financial Statements on page 57 of this annual rate of $1.22 per share, a 9 percent increase from report, compared to a net increase of $7 million in fi scal the rate paid in fi scal 2011. 2010. In fi scal 2010, we recorded a charge of $48 million As a result of the acquisition of interests in Yoplait enti- resulting from a change in the capitalization threshold ties, we expect to reduce our level of share repurchases in for certain equipment parts. fi scal 2012. We expect that share repurchases will off set Gross margin grew 3 percent in fi scal 2011 versus fi s- normal levels of stock option exercises in fi scal 2012. cal 2010. Gross margin as a percent of net sales increased Certain terms used throughout this report are defi ned by 40 basis points from fi scal 2010 to fi scal 2011. Th ese in a glossary on page 83 of this report. improvements were primarily driven by gains from the mark-to-market valuation of certain commodity posi- FISCAL 2011 CONSOLIDATED RESULTS OF OPERATIONS tions and grain inventories in fi scal 2011 versus losses in fi scal 2010. In fi scal 2011, net earnings attributable to General Mills Selling, general and administrative (SG&A) expenses was $1,798 million, up 18 percent from $1,530 million in were up $29 million in fi scal 2011 versus fi scal 2010, fi scal 2010, and we reported diluted EPS of $2.70 in fi scal while SG&A expenses as a percent of net sales remained 2011, up 20 percent from $2.24 in fi scal 2010. Fiscal 2011 essentially flat from fiscal 2010 to fiscal 2011. The results include gains from the mark-to-market valuation increase in SG&A expenses was primarily driven by a of certain commodity positions and grain inventories ver- $69 million increase in corporate pension expense par- sus fi scal 2010 which included losses. Fiscal 2011 results tially off set by a 7 percent decrease in advertising and also include the net benefi t from the resolution of uncer- media expense. In fi scal 2010, the Venezuelan govern- tain tax matters, and fi scal 2010 results include income ment devalued the bolivar fuerte exchange rate against tax expense related to the enactment of federal health the U.S. dollar. Th e $14 million foreign exchange loss care reform. Diluted EPS excluding these items aff ecting resulting from the devaluation was substantially off set comparability was $2.48 in fi scal 2011, up 8 percent from by a $13 million recovery against a corporate investment. $2.30 in fi scal 2010 (see the “Non-GAAP Measures” sec- During fi scal 2011, we recorded a net divestiture gain tion on page 85 for our use of this measure and our dis- of $17 million. We recorded a gain of $14 million related cussion of the items aff ecting comparability). to the sale of a foodservice frozen baked goods product Th e components of net sales growth are shown in the line in our International segment and a gain of $3 mil- following table: lion related to the sale of a pie shell product line in our Bakeries and Foodservice segment. Th ere were no dives- Components of Net Sales Growth titures in fi scal 2010. Fiscal 2011 Interest, net for fi scal 2011 totaled $346 million, $55 vs. 2010 million lower than fi scal 2010. Th e average interest rate (a) Contributions from volume growth 1 pt on our total outstanding debt was 5.6 percent in fi scal Net price realization and mix 1 pt 2011 compared to 6.3 percent in fi scal 2010, generating Foreign currency exchange Flat a $45 million decrease in net interest. Average inter- Net sales growth 2 pts est bearing instruments increased $474 million in fi scal (a) Measured in tons based on the stated weight of our product shipments. 2011, primarily due to more share repurchases than in Net sales grew 2 percent in fi scal 2011, due to 1 per- fi scal 2010, leading to a $30 million increase in net inter- centage point of volume growth and 1 percentage point est. In fi scal 2010, we also recorded a loss of $40 million of growth from net price realization and mix. Foreign related to the repurchase of certain notes, which rep- exchange was fl at compared to fi scal 2010. resented the premium paid, the write-off of remaining

20 General Mills discount and unamortized fees, and the settlement of allocations, all in CPW. In fi scal 2011, CPW net sales grew related swaps. by 3 percent due to a 2 percentage point increase in Restructuring, impairment, and other exit costs volume and a 1 percentage point increase from favorable totaled $4 million in fi scal 2011 as follows: foreign exchange. Net price realization and mix was fl at compared to fi scal 2010. Net sales for HDJ increased 4 Expense, in Millions percent from fi scal 2010 primarily due to 9 percentage Discontinuation of underperforming product points of favorable foreign exchange, partially off set by line in our U.S. Retail segment $1.7 a 5 percentage point decline in net price realization and Charges associated with restructuring actions mix. Volume was fl at compared to fi scal 2010. previously announced 2.7 Average diluted shares outstanding decreased by 18 Total $4.4 million in fi scal 2011 from fi scal 2010, due primarily to the repurchase of 32 million shares since the end of fi s- In fi scal 2011, we decided to exit an underperform- cal 2010, partially off set by the issuance of shares upon ing product line in our U.S. Retail segment. As a result stock option exercises. of this decision, we concluded that the future cash fl ows generated by this product line were insuffi cient FISCAL 2011 CONSOLIDATED BALANCE to recover the net book value of the associated long- SHEET ANALYSIS lived assets. Accordingly, we recorded a non-cash charge of $2 million related to the impairment of the associ- Cash and cash equivalents decreased $54 million from ated long-lived assets. No employees were aff ected by fi scal 2010, as discussed in the “Liquidity” section on these actions. In addition, we recorded $3 million of page 29. charges associated with restructuring actions previously Receivables increased $121 million from fi scal 2010 as announced. In fi scal 2011, we paid $6 million in cash a result of foreign currency translation eff ects of $44 related to restructuring actions taken in fi scal 2011 and million and sales timing shift s. Th e allowance for doubt- previous years. ful accounts was essentially unchanged from fi scal 2010. Our consolidated eff ective tax rate for fi scal 2011 was Inventories increased $265 million from fi scal 2010 29.7 percent compared to 35.0 percent in fi scal 2010. primarily as a result of increased commodity prices. Th e 5.3 percentage point decrease was primarily due to Prepaid expenses and other current assets increased a $100 million reduction to tax expense recorded in fi scal $105 million from fi scal 2010, due mainly to increases in 2011 related to a settlement with the Internal Revenue derivatives receivable balances. Service (IRS) concerning corporate income tax adjust- Land, buildings, and equipment increased $218 mil- ments for fi scal years 2002 to 2008. Th e adjustments lion from fi scal 2010, as capital expenditures of $649 mil- primarily relate to the amount of capital loss, deprecia- lion and a foreign currency translation impact of $55 tion, and amortization we reported as a result of the sale million were partially off set by depreciation expense of of noncontrolling interests in our General Mills Cereals, $462 million in fi scal 2011. LLC (GMC) subsidiary. Fiscal 2010 income tax expense Goodwill and other intangible assets increased $256 included a $35 million increase related to the enactment million from fi scal 2010 primarily due to foreign currency of federal health care reform (the Patient Protection and translation of $148 million and the acquisitions of the Aff ordable Care Act, as amended by Health Care and Mountain High yoghurt business and the Pasta Master Education Reconciliation Act of 2010). Th is legislation meals business. We recorded $72 million of goodwill and changed the tax treatment of subsidies to companies $45 million of other intangible assets related to these that provide prescription drug benefi ts that are at least transactions. the equivalent of benefi ts under Medicare Part D (see Other assets increased $99 million from fi scal 2010, the “Impact of Infl ation” section below for additional dis- driven mainly by a $126 million increase in our prepaid cussion of this legislation). pension assets and a $121 million increase in our invest- Aft er-tax earnings from joint ventures for fi scal 2011 ment and advances to joint ventures, partially off set by decreased to $96 million compared to $102 million in fi s- a decrease of $117 million in non-current interest rate cal 2010. Th e decrease is primarily due to higher adver- derivatives receivable. tising and media spending and increased service cost

Annual Report 2011 21 Accounts payable increased $146 million to $995 mil- these items aff ecting comparability was $2.30 in fi scal lion in fi scal 2011, primarily due to shift s in timing of 2010, up 16 percent from $1.99 in fi scal 2009 (see the payments. “Non-GAAP Measures” section on page 85 for our use of Long-term debt, including current portion, and notes this measure and our discussion of the items aff ecting payable increased $459 million from fi scal 2010 primar- comparability). ily due to the issuance of $1.2 billion of long-term debt Th e components of net sales growth are shown in the in fi scal 2011, partially off set by a $739 million decrease following table: in notes payable. Th e current and non-current portions of net deferred Components of Net Sales Growth income taxes liability increased $268 million from fi scal Fiscal 2010 2010 due to contributions to our defi ned benefi t pension vs. 2009 plans and book versus tax depreciation diff erences. Contributions from volume growth (a) Flat Other current liabilities decreased $441 million from Net price realization and mix 1 pt fi scal 2010, primarily driven by decreases in accrued Foreign currency exchange Flat taxes of $360 million and a $136 million decrease in con- Net sales growth 1 pt sumer marketing accruals. (a) Measured in tons based on the stated weight of our product shipments. Other liabilities decreased $386 million from fi scal 2010, driven by a decrease of $175 million in pension and Net sales grew 1 point in fi scal 2010, driven by 1 per- postretirement liabilities, a decrease of $158 million in centage point of growth from net price realization and non-current derivatives payable, and a decrease of $43 mix. Contributions from volume were fl at, including the million in non-current accrued taxes payable. loss of 2 points of growth from divested products and a Retained earnings increased $1,069 million from fi scal 1 percentage point loss from an additional week in fi scal 2010, refl ecting fi scal 2011 net earnings of $1,798 mil- 2009. Foreign exchange did not aff ect sales growth in lion less dividends paid of $729 million. Treasury stock fi scal 2010. increased $595 million from fi scal 2010, due to $1,164 mil- Cost of sales decreased $546 million in fi scal 2010 lion of share repurchases, partially off set by $568 million to $8,835 million. Th is decrease was mainly driven by related to stock-based compensation plans. Additional favorable mix, HMM initiatives, and lower input costs. In paid in capital increased $13 million from fi scal 2010, fi scal 2010, we recorded a $7 million net increase in cost due to stock compensation plan activity. Accumulated of sales related to mark-to-market valuation of certain other comprehensive loss (AOCI) decreased by $476 commodity positions and grain inventories as described million aft er-tax from fi scal 2010, primarily driven by in Note 7 to the Consolidated Financial Statements on foreign currency translation of $358 million and pension page 57 of this report, compared to a net increase of and postemployment activity of $128 million. $119 million in fi scal 2009. In fi scal 2010, we recorded a charge of $48 million resulting from a change in the FISCAL 2010 CONSOLIDATED RESULTS capitalization threshold for certain equipment parts, OF OPERATIONS enabled by an upgrade to our parts management system. Gross margin grew 12 percent in fi scal 2010 ver- Net earnings attributable to General Mills were $1,530 sus fi scal 2009. Gross margin as a percent of net sales million in fi scal 2010, up 17 percent from $1,304 million increased by 400 basis points from fi scal 2009 to fi scal in fi scal 2009, and we reported diluted EPS of $2.24 in 2010. Th ese improvements were driven by favorable mix, fi scal 2010, up 18 percent from $1.90 in fi scal 2009. Fiscal HMM initiatives and lower input costs. 2010 and 2009 results include losses from the mark- Selling, general and administrative (SG&A) expenses to-market valuation of certain commodity positions were up $270 million in fi scal 2010 versus fi scal 2009. and grain inventories. Fiscal 2010 results also include SG&A expenses as a percent of net sales in fi scal 2010 income tax expense related to the enactment of federal increased by 2 percentage points compared to fi scal health care reform, and the fi scal 2009 results include 2009. Th e increase in SG&A expenses was primarily a net divestiture gain, income from a settlement with driven by a 24 percent increase in advertising and media an insurance carrier, and the impact of a court deci- expense. In fiscal 2010, the Venezuelan government sion on an uncertain tax matter. Diluted EPS excluding devalued the bolivar fuerte exchange rate against the

22 General Mills U.S. dollar. Th e eff ect of the devaluation was a $14 million at our Vineland, New Jersey plant to rationalize capac- foreign exchange loss. Also in fi scal 2010, we recorded ity for more profi table items. Our decisions to exit these a $13 million recovery against a corporate investment U.S. Retail segment products resulted in a $24 million compared to write downs of $35 million related to vari- non-cash charge against the related long-lived assets. ous corporate investments in fi scal 2009. In fi scal 2009, No employees were aff ected by these actions. We recog- we recorded a $41 million gain from a settlement with nized $2 million of other exit costs and completed these the insurance carrier covering the loss of our La Salteña actions in fi scal 2011. We also decided to exit our bread- pasta manufacturing facility in Argentina, which was crumb product line at our Federalsburg, Maryland plant destroyed by fi re in fi scal 2008. in our Bakeries and Foodservice segment. As a result of Th ere were no divestitures in fi scal 2010. In fi scal this decision, we concluded that the future cash fl ows 2009, we recorded a net divestiture gain of $129 million generated by these products were insuffi cient to recover related to the sale of our Pop•Secret product line from the net book value of the associated long-lived assets. our U.S. Retail segment for $192 million in cash. Also in Accordingly, we recorded a non-cash charge of $6 mil- fi scal 2009, we recorded a $38 million loss on the sale lion primarily related to the impairment of these long- of a portion of the assets of our frozen unbaked bread lived assets and in the fourth quarter of fi scal 2010, we dough product line in our Bakeries and Foodservice seg- sold our manufacturing facility in Federalsburg for $3 ment, including the discontinuation of our frozen dinner million. In fi scal 2010, we also recorded a $1 million net roll product line in our U.S. Retail segment that shared gain on the sale of our previously closed Contagem, Brazil a divested facility. In addition, we recorded a $6 million bread and pasta plant for cash proceeds of $6 million, loss in fi scal 2009 on the sale of our bread concentrates and recorded $2 million of costs related to previously product line in our Bakeries and Foodservice segment. announced restructuring actions. In fi scal 2010, we paid Interest, net for fi scal 2010 totaled $402 million, $19 $8 million in cash related to restructuring actions taken million higher than fi scal 2009. Average interest-bearing in fi scal 2010 and previous years. instruments decreased $1.0 billion in fi scal 2010, leading Our consolidated eff ective tax rate for fi scal 2010 was to a $58 million decrease in net interest, while average 35.0 percent compared to 37.1 percent in fi scal 2009. interest rates increased 60 basis points generating a $37 Th e 2.1 percentage point decrease primarily refl ects an million increase in net interest. Th e average interest rate unfavorable court decision in fi scal 2009 on an uncer- on our total outstanding debt was 6.3 percent in fi scal tain tax matter, which increased fi scal 2009 income tax 2010 compared to 5.7 percent in fi scal 2009. In fi scal expense by $53 million. In addition, fi scal 2009 included 2010, we also recorded a loss of $40 million related to $15 million of tax expense related to nondeductible good- the repurchase of certain notes, which represented the will write-off s associated with divestitures. Fiscal 2010 premium paid, the write-off of remaining discount and income tax expense included a $35 million increase unamortized fees, and the settlement of related swaps. related to the enactment of federal health care reform. Restructuring, impairment, and other exit costs Th is legislation changed the tax treatment of subsi- totaled $31 million in fi scal 2010 as follows: dies to companies that provide prescription drug benefi ts that are at least the equivalent of benefi ts under Expense (Income), in Millions Medicare Part D (see the “Impact of Infl ation” section Discontinuation of kids’ refrigerated yogurt below for additional discussion of this legislation). Th e beverage and microwave soup product lines $24.1 fi scal 2010 tax rate also included increased benefi ts from Discontinuation of the breadcrumbs product the domestic manufacturing deduction. line at Federalsburg, Maryland plant 6.2 Aft er-tax earnings from joint ventures for fi scal 2010 Sale of Contagem, Brazil bread and pasta plant (0.6) increased to $102 million compared to $92 million in Charges associated with restructuring the same period in fi scal 2009. In fi scal 2010, net sales actions previously announced 1.7 for CPW grew 6 percent, due to 4 percentage points of Total $31.4 growth from net price realization and mix, 1 percentage point from favorable foreign exchange and a 1 percent- In fi scal 2010, we decided to exit our kids’ refriger- age point increase in volume, including growth in Russia, ated yogurt beverage product line at our Murfreesboro, Southeast Asia, the Middle East and Latin America. Net Tennessee plant and our microwave soup product line sales for HDJ decreased 4 percent, due primarily to an 11

Annual Report 2011 23 percentage point decline in volume, partially off set by favorable foreign exchange. Average diluted shares outstanding decreased by 4 million in fi scal 2010 from fi scal 2009, due primarily to the timing of share repurchases including the repurchase of 21 million shares since the end of fi scal 2009, partially off set by the issuance of shares upon stock option exercises.

RESULTS OF SEGMENT OPERATIONS

Our businesses are organized into three operating segments: U.S. Retail; International; and Bakeries and Foodservice. Th e following tables provide the dollar amount and percentage of net sales and operating proﬁ t from each segment for ﬁ scal years 2011, 2010, and 2009:

Net Sales Fiscal Year 2011 2010 2009 Percent Percent Percent In Millions Dollars of Total Dollars of Total Dollars of Total

U.S. Retail $10,163.9 69% $10,209.8 70% $9,973.6 68% International 2,875.5 19 2,684.9 18 2,571.8 18 Bakeries and Foodservice 1,840.8 12 1,740.9 12 2,010.4 14 Total $14,880.2 100% $14,635.6 100% $14,555.8 100%

Segment Operating Proﬁ t

U.S. Retail $2,347.9 80% $2,385.2 84% $2,206.6 84% International 291.4 10 192.1 7 239.2 9 Bakeries and Foodservice 306.3 10 263.2 9 178.4 7 Total $2,945.6 100% $2,840.5 100% $2,624.2 100%

Segment operating profi t excludes unallocated cor- U.S. Retail Segment Our U.S. Retail segment refl ects porate items, gain on divestitures, and restructuring, business with a wide variety of grocery stores, mass impairment, and other exit costs because these items merchandisers, membership stores, natural food chains, affecting operating profit are centrally managed at and drug, dollar and discount chains operating through- the corporate level and are excluded from the mea- out the United States. Our major product categories in sure of segment profi tability reviewed by our executive this business segment are ready-to-eat cereals, refrig- management. erated yogurt, ready-to-serve soup, dry dinners, shelf stable and frozen vegetables, refrigerated and frozen dough products, dessert and baking mixes, frozen pizza and pizza snacks, grain, fruit and savory snacks, and a wide variety of organic products including soup, granola bars, and cereal.

24 General Mills Components of net sales growth are shown in the fol- U.S. Retail Net Sales Percentage lowing table: Change by Division

Fiscal 2011 Fiscal 2010 Components of U.S. Retail Net Sales Growth vs. 2010 vs. 2009

Fiscal Fiscal Big G (2)% 5% 2011 2010 Meals (1) Flat vs. 2010 vs. 2009 Pillsbury (2) Flat Contributions from volume growth (a) Flat 1 pt Yoplait 1 1 Net price realization and mix Flat 1 pt Snacks 5 6 Net sales growth Flat 2 pts Baking Products (4) Flat (a) Measured in tons based on the stated weight of our product shipments. Small Planet Foods 13 3 Total Flat 2% In fi scal 2011, net sales for our U.S. Retail segment were $10.2 billion, fl at compared to fi scal 2010. Volume on a tonnage basis and net price realization and mix In fi scal 2011, net sales for Big G cereals declined 2 per- were both fl at compared to fi scal 2011. cent from last year which included Chocolate Cheerios Net sales for this segment totaled $10.2 billion in fi scal and Wheaties Fuel introductory volume. Meals division 2010 and $10.0 billion in fi scal 2009. Net price realiza- net sales decreased 1 percent as Helper dinner mixes tion and mix added 1 percentage point of growth and and Green Giant canned vegetables declines were par- volume on a tonnage basis contributed 1 percentage tially off set by growth in Old El Paso Mexican products, point of growth including a loss of 2 percentage points Progresso ready-to-serve soups and Wanchai Ferry from an additional week in fi scal 2009. and Macaroni Grill frozen entrees. Pillsbury net sales Net sales for our U.S. retail divisions are shown in the declined 2 percent due to sales declines in Totino’s pizza. tables below: Net sales for Yoplait grew 1 percent including the acquisition of the Mountain High yoghurt business. Snacks net U.S. Retail Net Sales by Division sales grew 5 percent, driven by Nature Valley and Fiber One grain snack bars. Net sales for Baking Products Fiscal Year declined 4 percent. Small Planet Food’s net sales were In Millions 2011 2010 2009 up 13 percent driven by double-digit growth for Lärabar Big G $2,293.6 $2,351.3 $2,231.9 fruit and nut energy bars. Meals 2,131.8 2,146.0 2,139.6 In fi scal 2010, net sales for Big G cereals grew 5 per- Pillsbury 1,823.9 1,858.2 1,851.9 cent driven by Multigrain Cheerios, Cinnamon Toast Yoplait 1,499.0 1,491.2 1,471.0 Crunch, and Fiber One cereals and introductory sales Snacks 1,378.3 1,315.8 1,237.7 of Chocolate Cheerios and Wheaties Fuel. Meals divi- Baking Products 808.6 845.2 842.6 sion net sales were fl at, as gains from Green Giant fro- Small Planet Foods and other 228.7 202.1 198.9 zen vegetables and Old El Paso Mexican products were Total $10,163.9 $10,209.8 $9,973.6 off set by lower sales of Progresso ready-to-serve soups. Pillsbury net sales were fl at, including gains on Totino’s pizza and Pizza Rolls snacks and Pillsbury Toaster Strudel pastries offset by lower sales for Pillsbury refrigerated baked goods. Net sales for Yoplait grew 1 percent, led by introductory sales from Yoplait Delights and Yoplait Greek style yogurt. Snacks net sales grew 6 percent, driven by Fiber One bars, Nature Valley grain snacks and several fruit snack varieties. Net sales for Baking Products were fl at. Small Planet Food’s net sales were up 3 percent, refl ecting performance of Cascadian Farm cereal and granola bars and Lärabar fruit and nut energy bars.

Annual Report 2011 25 Segment operating profi t of $2.3 billion in fi scal 2011 in fi scal 2010 was driven by 3 percentage points from declined $37 million, or 2 percent, from fi scal 2010. Th e net price realization and mix and 1 percentage point decrease was primarily driven by unfavorable supply of favorable foreign currency exchange. Pound volume chain costs of $81 million, partially off set by a 9 percent was fl at, refl ecting a 2 percentage point reduction from reduction in advertising and media expense. divested product lines. Segment operating profi t of $2.4 billion in fi scal 2010 Net sales for our International segment by geographic improved $179 million, or 8 percent, over fi scal 2009. Th e region are shown in the following tables: increase was primarily driven by favorable supply chain costs of $238 million, net price realization and mix of International Net Sales by Geographic Region $106 million, and volume growth of $54 million, partially Fiscal Year off set by a 22 percent increase in advertising and media In Millions 2011 2010 2009 expense and higher administrative costs. Europe $905.5 $859.6 $849.1 International Segment In Canada, our major prod- Canada 769.9 709.9 645.9 uct categories are ready-to-eat cereals, shelf stable and Asia/Pacifi c 822.9 720.0 634.5 frozen vegetables, dry dinners, refrigerated and frozen Latin America 377.2 395.4 442.3 dough products, dessert and baking mixes, frozen pizza Total $2,875.5 $2,684.9 $2,571.8 snacks, and grain and fruit snacks. In markets outside North America, our product categories include super- International Change in Net Sales by Geographic Region premium ice cream and frozen desserts, refrigerated Fiscal 2011 Fiscal 2010 yogurt, grain snacks, shelf stable and frozen vegetables, vs. 2010 vs. 2009 refrigerated and frozen dough products, and dry din- Europe 5% 1% ners. Our International segment also includes products Canada 8 10 manufactured in the United States for export, mainly to Asia/Pacifi c 14 13 Caribbean and Latin American markets, as well as prod- Latin America (5) (11) ucts we manufacture for sale to our international joint Total 7% 4% ventures. Revenues from export activities are reported in the region or country where the end customer is located. In fi scal 2011, net sales in Europe grew 5 percent Components of net sales growth are shown in the fol- driven by growth in Häagen Dazs and Nature Valley lowing table: in the United Kingdom, and Old El Paso in France and Switzerland, partially offset by unfavorable foreign Components of International Net Sales Growth exchange. Net sales in Canada increased 8 percent due to favorable foreign exchange and growth in ready-to- Fiscal 2011 Fiscal 2010 vs. 2010 vs. 2009 eat cereals. In the Asia/Pacifi c region, net sales grew 14 percent driven by growth of Häagen-Dazs and Contributions from volume growth (a) 6 pts Flat Wanchai Ferry brands in China, and atta fl our in India. Net price realization and mix 1 pt 3 pts Latin America net sales decreased 5 percent driven by Foreign currency exchange Flat 1 pt unfavorable foreign exchange primarily related to the Net sales growth 7 pts 4 pts 2010 devaluation of the Venezuelan currency, partially (a) Measured in tons based on the stated weight of our product shipments. off set by Diablitos growth in Venezuela and La Salteña growth in Argentina. In fi scal 2011, net sales for our International segment In fi scal 2010, net sales in Europe increased by 1 per- were $2,876 million, up 7 percent from fi scal 2010. Th is cent, driven by growth in Nature Valley and Old El growth was driven by 6 percentage points of contribu- Paso partially off set by unfavorable foreign currency tions from volume and 1 percentage point from net price exchange. Net sales in Canada increased 10 percent due realization and mix. Foreign currency exchange was fl at to favorable foreign currency exchange and growth from compared to fi scal 2010. cereal and Old El Paso. In the Asia/Pacifi c region, net Net sales totaled $2,685 million in fi scal 2010, up 4 sales grew 13 percent due to growth from Häagen-Dazs percent from $2,572 million in fi scal 2009. Th e growth shops and Wanchai Ferry products in China. Latin

26 General Mills America net sales decreased 11 percent due to unfavor- Components of net sales growth are shown in the fol- able foreign currency exchange, partially off set by net lowing table: price realization. Segment operating profi t for fi scal 2011 grew 52 per- Components of Bakeries and Foodservice Net Sales Growth cent to $291 million from $192 million in fi scal 2010, Fiscal 2011 Fiscal 2010 primarily driven by volume growth and favorable foreign vs. 2010 vs. 2009 currency exchange. In fi scal 2010, we incurred a $14 mil- Contributions from volume growth (a) Flat -8 pts lion foreign exchange loss on the revaluation of non- Net price realization and mix 6 pts -5 pts bolivar fuerte monetary balances in Venezuela. Foreign currency exchange Flat Flat Segment operating profi t for fi scal 2010 declined 20 Net sales growth 6 pts -13 pts percent to $192 million, from $239 million in fi scal 2009, (a) Measured in tons based on the stated weight of our product shipments. refl ecting unfavorable foreign currency eff ects and a 31 percent increase in advertising and media expense, par- For fiscal 2011, net sales for our Bakeries and tially off set by favorable net price realization. Foodservice segment increased 6 percent to $1,841 mil- In January 2010, the Venezuelan government devalued lion. Th e increase in fi scal 2011 was driven by an increase the bolivar fuerte by resetting the offi cial exchange rate. in net price realization and mix of 6 percentage points, Th e eff ect of the devaluation was a $14 million foreign primarily from prices indexed to commodity markets. exchange loss in fi scal 2010, primarily on the revaluation Contributions from volume were fl at, including a 2 per- of non-bolivar fuerte monetary balances in Venezuela. centage point decline from a divested product line. We continue to use the offi cial exchange rate to remea- For fiscal 2010, net sales for our Bakeries and sure the fi nancial statements of our Venezuelan opera- Foodservice segment decreased 13 percent to $1,741 mil- tions, as we intend to remit dividends solely through the lion. Th e decrease in fiscal 2010 was driven by 8 percent- government-operated Foreign Exchange Administration age points from volume declines, including 8 percentage Board (CADIVI). Th e devaluation of the bolivar fuerte points from divested product lines and a loss of 2 per- also reduced the U.S. dollar equivalent of our Venezuelan centage points from an additional week in fi scal 2009. results of operations and fi nancial condition, but this did Net price realization and mix decreased 5 percentage not have a material impact on our results. During fi scal points, primarily from prices indexed to commodity 2010, Venezuela became a highly infl ationary economy, markets. which did not have a material impact on our results in Net sales for our Bakeries and Foodservice segment by fi scal 2011 or 2010. customer channel is shown in the following tables:

Bakeries And Foodservice Segment In our Bakeries and Bakeries and Foodservice Net Sales by Customer Channel Foodservice segment our major product categories are Fiscal Year cereals, snacks, yogurt, unbaked and fully baked frozen In Millions 2011 2010 2009 dough products, baking mixes, and ﬂ our. Many products we sell are branded to the consumer and nearly all are Foodservice Distributors $557.3 $543.3 $558.1 branded to our customers. We sell to distributors and Convenience Stores 225.6 202.8 190.4 operators in many customer channels including food- Bakeries and National service, convenience stores, vending, and supermarket Restaurant Accounts 1,057.9 994.8 1,261.9 Total $1,840.8 $1,740.9 2,010.4 bakeries.

Bakeries and Foodservice Net Sales Percentage Change by Customer Channel

Fiscal 2011 Fiscal 2010 vs. 2010 vs. 2009

Foodservice Distributors 3% (3)% Convenience Stores 11 7 Bakeries and National Restaurant Accounts 6 (21) Total 6% (13)%

Annual Report 2011 27 In fi scal 2011, segment operating profi t was $306 mil- cereals for customers in the United Kingdom. We also lion, up from $263 million in fi scal 2010. Th e increase have a 50 percent equity interest in HDJ, which man- was primarily driven by net price realization and mix ufactures, distributes, and markets Häagen-Dazs ice and increased grain merchandising earnings, partially cream products and frozen novelties. off set by higher input costs. Our share of after-tax joint venture earnings Segment operating profi t was $263 million in fi scal decreased from $102 million in fi scal 2010 to $96 mil- 2010, up from $178 million in fi scal 2009. Th e increase lion in fi scal 2011 primarily due to higher advertising and was due to lower input costs, plant operating perfor- media spending and increased service cost allocations, mance, and increased grain merchandising earnings. all in CPW. Our share of aft er-tax joint venture earnings increased Unallocated Corporate Items Unallocated corporate from $92 million in fi scal 2009 to $102 million in fi scal items include corporate overhead expenses, variances 2010. Th e increase is mainly due to lower scalfi 2009 to planned domestic employee benefi ts and incentives, earnings which were reduced by a $6 million deferred annual contributions to the General Mills Foundation, income tax valuation allowance. and other items that are not part of our measurement Th e change in net sales for each joint venture is set of segment operating performance. Th is includes gains forth in the following table: and losses from mark-to-market valuation of certain commodity positions until passed back to our operating Joint Venture Change in Net Sales segments in accordance with our policy as discussed in Fiscal 2011 Fiscal 2010 Note 2 of the Consolidated Financial Statements on page vs. 2010 vs. 2009 49 of this report. CPW 3% 6% For fi scal 2011, unallocated corporate expense totaled HDJ 4 (4) $184 million compared to $203 million last year. In fi scal Joint Ventures 4% 4% 2011 we recorded a $95 million net decrease in expense related to mark-to-market valuation of certain commod- For fi scal 2011, CPW net sales grew by 3 percent due ity positions and grain inventories, compared to a $7 to a 2 percentage point increase in volume and 1 per- million net increase in expense last year. Th is was par- centage point from favorable foreign exchange. Net price tially off set by a $69 million increase in corporate pen- realization and mix was fl at compared to fi scal 2010. Net sion expense in fi scal 2011. In fi scal 2010, we recorded a sales for HDJ increased 4 percent from fi scal 2010 pri- $13 million recovery against a corporate investment. marily due to 9 percentage points of favorable foreign Unallocated corporate expense totaled $203 million exchange, partially off set by a 5 percentage point decline in fi scal 2010 compared to $342 million in fi scal 2009. in net price realization and mix. Volume was fl at com- In fi scal 2010, we recorded a $7 million net increase in pared to fi scal 2010. expense related to mark-to-market valuation of certain For fi scal 2010, CPW net sales grew by 6 percent due commodity positions and grain inventories, compared to to 4 percentage points of growth from net price realiza- a $119 million net increase in expense in fi scal 2009. tion and mix, 1 percentage point from favorable foreign Also in fi scal 2010, we recorded a $13 million recovery exchange and a 1 percentage point increase in volume, against a corporate investment compared to $35 mil- including growth in Russia, Southeast Asia, the Middle lion of write-downs against various investments in fi scal East and Latin America. Net sales for HDJ decreased 4 2009. In fi scal 2009, we recognized a $41 million gain percent from fi scal 2009 due to an 11 percentage point from an insurance settlement. decline in volume, partially off set by favorable foreign exchange. Joint Ventures In addition to our consolidated opera- Selected cash fl ows from our joint ventures are set tions, we participate in two joint ventures. We have a forth in the following table: 50 percent equity interest in CPW, which manufactures and markets ready-to-eat cereal products in more than 130 countries and republics outside the United States and Canada. CPW also markets cereal bars in several European countries and manufactures private label

28 General Mills Selected Cash Flows from Joint Ventures Cash Flows from Operations

Fiscal Year Fiscal Year Inﬂ ow (Outﬂ ow), in Millions 2011 2010 2009 In Millions 2011 2010 2009

Advances to joint ventures, net $(1.8) $(128.1) $8.2 Net earnings, including Dividends received 72.7 88.0 68.5 earnings attributable to noncontrolling interests $1,803.5 $1,535.0 $1,313.7 IMPACT OF INFLATION Depreciation and amortization 472.6 457.1 453.6 Aft er-tax earnings We have experienced signifi cant input cost volatility from joint ventures (96.4) (101.7) (91.9) Stock-based compensation 105.3 107.3 117.7 since fi scal 2006. Our gross margin performance in fi s- Deferred income taxes 205.3 22.3 215.8 cal 2011 refl ects the impact of input cost infl ation, pri- Tax benefi t on exercised options (106.2) (114.0) (89.1) marily on commodities inputs. We expect the cost of Distributions of earnings commodities and energy to increase at a higher rate from joint ventures 72.7 88.0 68.5 in fi scal 2012. We attempt to minimize the eff ects of Pension and other postretirement infl ation through planning and operating practices. Our benefi t plan contributions (220.8) (17.2) (220.3) risk management practices are discussed on pages 41 Pension and other postretirement through 42 of this report. benefi t plan (income) expense 73.6 (37.9) (27.5) The Patient Protection and Affordable Care Act, Divestitures (gain), net (17.4) — (84.9) as amended by the Health Care and Education Gain on insurance settlement — — (41.3) Reconciliation Act of 2010 (collectively, the Act) was Restructuring, impairment, signed into law in March 2010. Th e Act codifi es health and other exit costs (income) (1.3) 23.4 31.3 care reforms with staggered eff ective dates from 2010 to Changes in current 2018. Many provisions in the Act require the issuance of assets and liabilities (720.9) 143.4 176.9 additional guidance from various government agencies. Other, net (43.2) 75.5 5.7 Because the Act does not take eff ect fully until future Net cash provided by years, the Act did not have a material impact on our operating activities $1,526.8 $2,181.2 $1,828.2 fi scal 2011 or 2010 results of operations. Given the complexity of the Act, the extended time period over which In fi scal 2011, our operations generated $1.5 billion of the reforms will be implemented, and the unknown cash compared to $2.2 billion in fi scal 2010. Th e $654 impact of future regulatory guidance, the full impact of million decrease primarily reflects an $864 million the Act on future periods will not be known until those increased use of cash for net current assets and liabili- regulations are adopted. ties and a $200 million voluntary contribution to our principal domestic pension plans, partially off set by the LIQUIDITY $268 million increase in net earnings and a $183 million change in deferred income taxes primarily related to our Th e primary source of our liquidity is cash fl ow from pension plan contribution and a change in tax legislation operations. Over the most recent three-year period, our related to depreciation deductions. operations have generated $5.5 billion in cash. A sub- Th e increased use of cash for net current assets and stantial portion of this operating cash fl ow has been liabilities refl ects lower other current liabilities, primarily returned to stockholders through share repurchases and refl ecting changes in the timing of marketing activities dividends. We also use this source of liquidity to fund and related accruals and a payment of $385 million in fi s- our capital expenditures. We typically use a combination cal 2011 related to our IRS settlement as described in Note of cash, notes payable, and long-term debt to fi nance 14 to the Consolidated Financial Statements on page 77 acquisitions and major capital expansions. of this report. In addition, inventories used $223 million more cash in fi scal 2011 refl ecting increased input costs. We strive to grow core working capital at or below our growth in net sales. For fi scal 2011, core working capital increased 16 percent, compared to net sales growth of 2

Annual Report 2011 29 percent, refl ecting cost infl ation and higher inventories. expenditures required to support Yoplait S.A.S. Th ese In fi scal 2010, core working capital increased 3 percent, expenditures support initiatives that are expected to: compared to net sales growth of 1 percent, and in fi scal increase manufacturing capacity for grain snacks; con- 2009, core working capital declined 1 percent, compared tinue HMM initiatives throughout the supply chain; to net sales growth of 7 percent. expand International production capacity for Bugles, In fi scal 2010, our operations generated $2.2 billion Nature Valley bars and Häagen-Dazs products; and of cash compared to $1.8 billion in fi scal 2009, primarily integrate fi scal 2011 acquisitions. refl ecting the $221 million increase in net earnings, including earnings attributable to noncontrolling interests. Cash Flows from Financing Activities

Cash Flows from Investing Activities Fiscal Year In Millions 2011 2010 2009

Fiscal Year Change in notes payable $ (742.6) $ 235.8 $(1,390.5) In Millions 2011 2010 2009 Issuance of long-term debt 1,200.0 — 1,850.0 Purchases of land, buildings, Payment of long-term debt (7.4) (906.9) (370.3) and equipment $(648.8) $(649.9) $(562.6) Proceeds from common stock Acquisitions (123.3) — — issued on exercised options 410.4 388.8 305.2 Investments in affi liates, net (1.8) (130.7) 5.9 Tax benefi t on exercised options 106.2 114.0 89.1 Proceeds from disposal of land, Purchases of common buildings, and equipment 4.1 7.4 4.1 stock for treasury (1,163.5) (691.8) (1,296.4) Proceeds from divestitures Dividends paid (729.4) (643.7) (579.5) of product lines 34.4 — 244.7 Other, net (10.3) — (12.1) Proceeds from insurance settlement — — 41.3 Net cash used by Other, net 20.3 52.0 (22.3) fi nancing activities $ (936.6) $(1,503.8) $ (1,404.5) Net cash used by investing activities $(715.1) $(721.2) $(288.9) Net cash used by fi nancing activities decreased by $567 million in fi scal 2011. In fiscal 2011, cash used by investing activities In May 2011, we issued $300 million aggregate prin- decreased by $6 million from fi scal 2010. Th e decreased cipal amount of 1.55 percent fi xed-rate notes and $400 use of cash refl ects $25 million of proceeds from the million aggregate principal amount of floating-rate divestiture of a foodservice frozen baked goods prod- notes, both due May 16, 2014. Th e proceeds of these uct line in our International segment and $9 million of notes were used to repay a portion of our outstanding proceeds from the sale of a pie shell product line in our commercial paper. Th e fl oating-rate notes bear interest Bakeries and Foodservice segment in fi scal 2011. In addi- equal to three-month LIBOR plus 35 basis points, subject tion, in fi scal 2011, we paid $85 million for the acquisi- to quarterly reset. Interest on the fl oating-rate notes is tion of the Mountain High yoghurt business for our payable quarterly in arrears. Interest on the fi xed-rate U.S. Retail segment and $38 million for the acquisition notes is payable semi-annually in arrears. Th e fi xed-rate of the Pasta Master meals business in Australia for our notes may be redeemed at our option at any time for a International segment. We also invested $131 million in specifi ed make whole amount. Th ese notes are senior affi liates in fi scal 2010, mainly our CPW joint venture, to unsecured, unsubordinated obligations that include a repay local borrowings. change of control repurchase provision. In fiscal 2010, cash used by investing activities In June 2010, we issued $500 million aggregate prin- increased by $432 million from fi scal 2009 primarily cipal amount of 5.4 percent notes due 2040. Th e pro- due to $245 million of proceeds from the sale of certain ceeds of these notes were used to repay a portion of product lines in fi scal 2009 and $41 million of insurance our outstanding commercial paper. Interest on these proceeds received in fi scal 2009 from the settlement notes is payable semi-annually in arrears. Th ese notes with the insurance carrier covering the loss at our La may be redeemed at our option at any time for a speci- Salteña pasta manufacturing facility in Argentina. We fi ed make whole amount. Th ese notes are senior unse- also invested $131 million in affi liates in fi scal 2010. cured, unsubordinated obligations that include a change We expect capital expenditures to increase to approx- of control repurchase provision. imately $670 million in fiscal 2012, excluding any

30 General Mills In May 2010, we paid $437 million to repurchase in a CAPITAL RESOURCES cash tender off er $400 million of our previously issued debt. We repurchased $221 million of our 6.0 percent Total capital consisted of the following: notes due 2012 and $179 million of our 5.65 percent May 29, May 30, notes due 2012. We issued commercial paper to fund the In Millions 2011 2010 repurchase. Notes payable $ 311.3 $ 1,050.1 In January 2009, we issued $1.2 billion aggregate prin- Current portion of long-term debt 1,031.3 107.3 cipal amount of 5.65 percent notes due 2019. In August Long-term debt 5,542.5 5,268.5 2008, we issued $700 million aggregate principal amount Total debt 6,885.1 6,425.9 of 5.25 percent notes due 2013. Th e proceeds of these Noncontrolling interests 246.7 245.1 notes were used to repay a portion of our outstand- Stockholders’ equity 6,365.5 5,402.9 ing commercial paper. Interest on these notes is payable Total capital $13,497.3 $12,073.9 semi-annually in arrears. Th ese notes may be redeemed at our option at any time for a specifi ed make-whole Th e increase in total capital from fi scal 2010 to fi s- amount. Th ese notes are senior unsecured, unsubordi- cal 2011 was primarily due to net earnings attributable nated obligations that include a change of control repur- to General Mills of $1.8 billion and an increase in cur- chase provision. rent and long-term debt, partially off set by a decrease in During fi scal 2011, we repurchased 32 million shares notes payable. of our common stock for an aggregate purchase price Th e following table details the fee-paid committed of $1,164 million. During fi scal 2010, we repurchased 21 and uncommitted credit lines we had available as of million shares of our common stock for an aggregate May 29, 2011: purchase price of $692 million. During fi scal 2009, we repurchased 40 million shares of our common stock for In Billions Amount an aggregate purchase price of $1,296 million. On June Credit facility expiring: 28, 2010, our Board of Directors authorized the repur- October 2012 $1.8 chase of up to 100 million shares of our common stock. October 2013 1.1 Purchases under the authorization can be made in the Total committed credit facilities 2.9 open market or in privately negotiated transactions, Uncommitted credit facilities 0.3 including the use of call options and other derivative Total committed and uncommitted credit facilities $3.2 instruments, Rule 10b5-1 trading plans, and accelerated repurchase programs. Th e authorization has no specifi ed To ensure availability of funds, we maintain bank termination date. credit lines suffi cient to cover our outstanding short- Dividends paid in fi scal 2011 totaled $729 million, or term borrowings. Commercial paper is a continuing $1.12 per share, a 17 percent per share increase from fi s- source of short-term fi nancing. We issue commercial cal 2010. Dividends paid in fi scal 2010 totaled $644 mil- paper in the United States and Europe. Our commercial lion, or $0.96 per share, a 12 percent per share increase paper borrowings are supported by $2.9 billion of fee- from fi scal 2009 dividends of $0.86 per share. On June paid committed credit lines, consisting of a $1.8 billion 28, 2011, our Board of Directors approved a dividend facility expiring in October 2012 and a $1.1 billion facility increase to an annual rate of $1.22 per share, a 9 percent expiring in October 2013. We also have $312 million in increase from the rate paid in fi scal 2011. uncommitted credit lines that support our foreign operations. As of May 29, 2011, there were no amounts outstanding on the fee-paid committed credit lines and $119 million was drawn on the uncommitted lines. Th e credit facilities contain several covenants, including a requirement to maintain a fi xed charge coverage ratio of at least 2.5. Certain of our long-term debt agreements, our credit facilities, and our noncontrolling interests contain restrictive covenants. As of May 29, 2011, we were in compliance with all of these covenants.

Annual Report 2011 31 On July 1, 2011, we acquired a 51 percent controlling In April 2002, we contributed assets to our subsidiary interest in Yoplait S.A.S. and a 50 percent interest in GMC. In exchange for the contribution of these assets, Yoplait Marques S.A.S. for an aggregate purchase price GMC issued its managing membership interest and its of $1.2 billion. Yoplait S.A.S. operates yogurt businesses limited preferred membership interests to certain of in several countries, including France and the United our wholly owned subsidiaries. We continue to hold the Kingdom, and oversees franchise relationships around entire managing membership interest, and therefore the world. Yoplait Marques S.A.S. holds the worldwide direct the operations of GMC. rights to Yoplait and related trademarks. We fi nanced Th e third-party holder of the Class A Interests in GMC this transaction using cash available in our foreign sub- receives quarterly preferred distributions from available sidiaries and commercial paper. net income based on the application of a fl oating pre- We have $1,031 million of long-term debt maturing ferred return rate, currently equal to the sum of three- in the next 12 months that is classifi ed as current, pri- month LIBOR plus 65 basis points. Th e preferred return marily $1,020 million of 6.0 percent notes which mature rate of the Class A Interests is adjusted every fi ve years on February 15, 2012. We believe that cash fl ows from through a negotiated agreement between the Class A operations, together with available short- and long-term Interest holder and GMC, or through a remarketing auc- debt fi nancing, will be adequate to meet our liquidity tion. Th e next remarketing is scheduled to occur in June and capital needs for at least the next 12 months. 2012 and thereaft er in five-year intervals. As of May 29, 2011, our total debt, including the Th e holder of the Class A Interests may initiate a liq- impact of derivative instruments designated as hedges, uidation of GMC under certain circumstances, including, was 77 percent in fi xed-rate and 23 percent in fl oating- without limitation, the bankruptcy of GMC or its sub- rate instruments, compared to 75 percent in fi xed-rate sidiaries, GMC’s failure to deliver the preferred distribu- and 25 percent in fl oating-rate instruments on May tions on the Class A Interests, GMC’s failure to comply 30, 2010. Th e change in the fi xed-rate and floating-rate with portfolio requirements, breaches of certain cove- percentages was driven by the issuance of $500 mil- nants, lowering of our senior debt rating below either lion aggregate principal amount of fi xed rate debt and a Baa3 by Moody’s or BBB- by Standard & Poor’s, and a decrease in notes payable in fi scal 2011. failed attempt to remarket the Class A Interests as a We have an eff ective shelf registration statement on result of GMC’s failure to assist in such remarketing. fi le with the SEC covering the sale of debt securities. In the event of a liquidation of GMC, each member of Th e shelf registration statement will expire in December GMC will receive the amount of its then current capital 2011. account balance. Th e managing member may avoid liq- Growth in return on average total capital is one of uidation by exercising its option to purchase the Class A our key performance measures (see the “Non-GAAP Interests. Measures” section on page 85 for our discussion of this We may exercise our option to purchase the Class A measure, which is not defi ned by GAAP). Return on Interests for consideration equal to the then current average total capital decreased from 13.8 percent in fi s- capital account value, plus any unpaid preferred return cal 2010 to 13.7 percent in fi scal 2011 primarily refl ect- and the prescribed make-whole amount. If we purchase ing higher working capital. We also believe that the these interests, any change in the unrelated third-party ratio of fi xed charge coverage and the ratio of operat- investor’s capital account from its original value will be ing cash fl ow to debt are important measures of our charged directly to retained earnings and will increase fi nancial strength. Our fi xed charge coverage ratio in fi s- or decrease the net earnings used to calculate EPS in cal 2011 was 7.03 compared to 6.42 in fi scal 2010. Th e that period. measure increased from fi scal 2010 as earnings before income taxes and aft er-tax earnings from joint ventures increased by $224 million and fi xed charges decreased by $9 million, driven mainly by lower interest expense. Our operating cash fl ow to debt ratio decreased 11.7 percentage points to 22.2 percent in fi scal 2011, driven by a decrease in cash fl ows from operations and an increase in our year-end debt balance.

32 General Mills OFF-BALANCE SHEET ARRANGEMENTS AND funding of our benefi t trusts or by changes in regulatory CONTRACTUAL OBLIGATIONS requirements. Additionally, our projections concerning timing of the PPA funding requirements are subject to As of May 29, 2011, we have issued guarantees and com- change and may be infl uenced by factors such as gen- fort letters of $591 million for the debt and other obliga- eral market conditions aff ecting trust asset performance, tions of consolidated subsidiaries, and guarantees and interest rates, and our future decisions regarding certain comfort letters of $341 million for the debt and other elective provisions of the PPA. obligations of non-consolidated affi liates, mainly CPW. Th e following table summarizes our future estimated In addition, off -balance sheet arrangements are gener- cash payments under existing contractual obligations, ally limited to the future payments under non-cancelable including payments due by period: operating leases, which totaled $261 million as of May Payments Due by Fiscal Year 29, 2011. 2017 and As of May 29, 2011, we had invested in six variable In Millions Total 2012 2013-14 2015-16 Th ereaft er interest entities (VIEs). We determined whether or not Long-term debt(a) $ 6,565.1 $1,030.1 $2,134.8 $750.1 $2,650.1 we were the primary benefi ciary (PB) of each VIE using Accrued interest 114.0 114.0 — — — a qualitative assessment that considered the VIE’s pur- Operating leases (b) 261.4 74.4 88.9 48.7 49.4 pose and design, the involvement of each of the interest Capital leases 5.9 2.2 2.7 0.8 0.2 holders, and the risks and benefi ts of the VIE. We have Purchase obligations (c) 2,791.4 2,457.6 193.9 74.8 65.1 an interest in a contract manufacturer at our former Total contractual facility in Geneva, Illinois. We are the PB and have con- obligations 9,737.8 3,678.3 2,420.3 874.4 2,764.8 solidated this entity. Th is entity had property and equip- Other long-term ment with a carrying value of $14 million and long-term obligations (d) 1,731.1 — — — — debt of $15 million as of May 29, 2011. Th e liabilities Total long-term recognized as a result of consolidating this entity do not obligations $11,468.9 $3,678.3 $2,420.3 $874.4 $2,764.8 represent additional claims on our general assets. Th e (a) Amounts represent the expected cash payments of our long-term debt and remaining fi ve VIEs, two of which we are not the PB, are do not include $3 million for domestic capital leases or $6 million for net unamortized bond premiums and discounts and fair value adjustments. not material to our results of operations, fi nancial condition, or liquidity as of and for the year ended May 29, (b) Operating leases represents the minimum rental commitments under non-cancelable operating leases. 2011. We have provided minimal fi nancial or other support to VIEs during the current period and there are no (c) Th e majority of the purchase obligations represent commitments for raw arrangements related to VIEs that would require us to material and packaging to be utilized in the normal course of business and for consumer marketing spending commitments that support our provide signifi cant fi nancial support in the future. brands. For purposes of this table, arrangements are considered purchase Our defi ned benefi t plans in the United States are obligations if a contract specifi es all signifi cant terms, including fi xed or minimum quantities to be purchased, a pricing structure, and approximate subject to the requirements of the Pension Protection timing of the transaction. Most arrangements are cancelable without a Act (PPA). Th e PPA revised the basis and methodology signifi cant penalty and with short notice (usually 30 days). Any amounts for determining defi ned benefi t plan minimum funding refl ected on the Consolidated Balance Sheets as accounts payable and accrued liabilities are excluded from the table above. requirements as well as maximum contributions to and benefi ts paid from tax-qualifi ed plans. Most of these (d) Th e fair value of our interest rate, foreign exchange and grain derivative provisions were applicable to our domestic defi ned ben- contracts with a payable position to the counterparty was $86 million as of May 29, 2011, based on fair market values as of that date. Future efi t pension plans in fi scal 2011 on a phased-in basis. changes in market values will impact the amount of cash ultimately paid Th e PPA may ultimately require us to make additional or received to settle those instruments in the future. Other long-term obligations mainly consist of liabilities for accrued compensation and benefi ts, contributions to our domestic plans. We did not make including the underfunded status of certain of our defi ned benefi t pen- a contribution to our principal defi ned benefi t pension sion, other postretirement, and postemployment plans, and miscellaneous plans in fi scal 2010. We made $200 million of voluntary liabilities. We expect to pay $18 million of benefi ts from our unfunded postemployment benefi t plans and $10 million of deferred compensation contributions to our principal domestic plans in fi scal in fi scal 2012. We are unable to reliably estimate the amount of these 2011. We do not expect to be required to make any payments beyond fi scal 2012. As of May 29, 2011, our total liability for uncertain tax positions and the associated accrued interest and penalties contributions in fi scal 2012. Actual fi scal 2012 contri- was $280 million. butions could exceed our current projections, and may be infl uenced by our decision to undertake discretionary

Annual Report 2011 33 SIGNIFICANT ACCOUNTING ESTIMATES the carrying amount of the asset group. Asset groups have identifi able cash fl ows independent of other asset For a complete description of our signifi cant account- groups. Measurement of an impairment loss would be ing policies, see Note 2 to the Consolidated Financial based on the excess of the carrying amount of the asset Statements on page 49 of this report. Our signifi cant group over its fair value. Fair value is measured using accounting estimates are those that have a meaning- discounted cash fl ows or independent appraisals, as ful impact on the reporting of our fi nancial condition appropriate. and results of operations. Th ese estimates include our accounting for promotional expenditures, valuation of Intangible Assets Goodwill is not subject to amortiza- long-lived assets, intangible assets, stock-based compen- tion and is tested for impairment annually and when- sation, income taxes, and defi ned benefi t pension, other ever events or changes in circumstances indicate that postretirement and postemployment benefi ts. impairment may have occurred. Impairment testing is performed for each of our reporting units. We compare Promotional Expenditures Our promotional activities the carrying value of a reporting unit, including goodwill, are conducted through our customers and directly or to the fair value of the unit. Carrying value is based on indirectly with end consumers. Th ese activities include: the assets and liabilities associated with the operations payments to customers to perform merchandising activ- of that reporting unit, which oft en requires allocation ities on our behalf, such as advertising or in-store dis- of shared or corporate items among reporting units. If plays; discounts to our list prices to lower retail shelf the carrying amount of a reporting unit exceeds its fair prices; payments to gain distribution of new products; value, we revalue all assets and liabilities of the reporting coupons, contests, and other incentives; and media and unit, excluding goodwill, to determine if the fair value of advertising expenditures. Th e media and advertising the net assets is greater than the net assets including expenditures are generally recognized as expense when goodwill. If the fair value of the net assets is less than the advertisement airs. Th e cost of payments to custom- the carrying amount of net assets including goodwill, ers and other consumer-related activities are recognized impairment has occurred. Our estimates of fair value as the related revenue is recorded, which generally pre- are determined based on a discounted cash fl ow model. cedes the actual cash expenditure. Th e recognition of Growth rates for sales and profi ts are determined using these costs requires estimation of customer participa- inputs from our annual long-range planning process. We tion and performance levels. Th ese estimates are made also make estimates of discount rates, perpetuity growth based on the forecasted customer sales, the timing and assumptions, market comparables, and other factors. We forecasted costs of promotional activities, and other fac- performed our fi scal 2011 assessment as of November tors. Diff erences between estimated expenses and actual 29, 2010, and determined there was no impairment of costs are normally insignifi cant and are recognized as a goodwill for any of our reporting units as their related change in management estimate in a subsequent period. fair values were substantially in excess of their carrying Our accrued trade, coupon, and consumer marketing lia- values. bilities were $463 million as of May 29, 2011, and $555 We evaluate the useful lives of our other intangible million as of May 30, 2010. Because our total promo- assets, mainly brands, to determine if they are fi nite or tional expenditures (including amounts classifi ed as a indefi nite-lived. Reaching a determination on useful life reduction of revenues) are signifi cant, if our estimates requires signifi cant judgments and assumptions regard- are inaccurate we would have to make adjustments in ing the future eff ects of obsolescence, demand, compe- subsequent periods that could have a material eff ect on tition, other economic factors (such as the stability of our results of operations. the industry, known technological advances, legislative action that results in an uncertain or changing regula- Valuation of Long-lived Assets Long-lived assets are tory environment, and expected changes in distribution reviewed for impairment whenever events or changes channels), the level of required maintenance expendi- in circumstances indicate that the carrying amount tures, and the expected lives of other related groups of of an asset (or asset group) may not be recoverable. assets. An impairment loss would be recognized when esti- Our indefi nite-lived intangible assets, mainly intangible mated undiscounted future cash fl ows from the opera- assets primarily associated with the Pillsbury, Totino’s, tion and disposition of the asset group are less than Progresso, Green Giant, Old El Paso, and Häagen-Dazs

34 General Mills brands, are also tested for impairment annually and Stock-based Compensation The valuation of stock whenever events or changes in circumstances indi- options is a signifi cant accounting estimate that requires cate that their carrying value may not be recoverable. us to use judgments and assumptions that are likely We performed our fi scal 2011 assessment of our brand to have a material impact on our fi nancial statements. intangibles as of November 29, 2010. Our estimate of Annually, we make predictive assumptions regarding the fair value of the brands was based on a discounted future stock price volatility, employee exercise behavior, cash fl ow model using inputs which included: projected dividend yield, and the forfeiture rate. revenues from our annual long-range plan; assumed roy- We estimate our future stock price volatility using the alty rates that could be payable if we did not own the historical volatility over the expected term of the option, brands; and a discount rate. As of our assessment date, excluding time periods of volatility we believe a market- there was no impairment of any of our indefi nite-lived place participant would exclude in estimating our stock intangible assets as their related fair values were sub- price volatility. We also have considered, but did not use, stantially in excess of the carrying values. implied volatility in our estimate, because trading activity As of May 29, 2011, we had $10.5 billion of goodwill in options on our stock, especially those with tenors of and indefi nite-lived intangible assets. While we currently greater than 6 months, is insuffi cient to provide a reli- believe that the fair value of each intangible exceeds its able measure of expected volatility. If all other assump- carrying value and that those intangibles so classifi ed tions are held constant, a one percentage point increase will contribute indefi nitely to our cash fl ows, materially in our fi scal 2011 volatility assumption would increase diff erent assumptions regarding future performance of the grant-date fair value of our fi scal 2011 option awards our businesses or a diff erent weighted-average cost of by 5 percent. capital could result in signifi cant impairment losses and Our expected term represents the period of time that amortization expense. options granted are expected to be outstanding based on In addition, we assess our investments in our joint historical data to estimate option exercises and employee ventures if we have reason to believe an impairment terminations within the valuation model. Separate groups may have occurred including, but not limited to, ongo- of employees have similar historical exercise behavior ing operating losses, projected decreases in earnings, and therefore were aggregated into a single pool for valu- increases in the weighted average cost of capital or sig- ation purposes. Th e weighted-average expected term for nifi cant business disruptions. Th e signifi cant assump- all employee groups is presented in the table below. An tions used to estimate fair value include revenue growth increase in the expected term by 1 year, leaving all other and profi tability, royalty rates, capital spending, depre- assumptions constant, would change the grant date fair ciation and taxes, foreign currency exchange rates and value by 16 percent. a discount rate. By their nature, these projections and The risk-free interest rate for periods during the assumptions are uncertain. If we were to determine the expected term of the options is based on the U.S. current fair value of our investment was less than the Treasury zero-coupon yield curve in eff ect at the time of carrying value of the investment, then we would assess grant. if the shortfall was of a temporary or permanent nature Th e estimated fair values of stock options granted and and write down the investment to its fair value if we the assumptions used for the Black-Scholes option-pric- concluded the impairment is other than temporary. ing model were as follows:

Aft er the earthquakes and tsunami in Japan in March Fiscal Year 2011, we assessed the fair value of our investment in 2011 2010 2009 HDJ and determined that it exceeded the carrying value Estimated fair values of by approximately 5 percent. As of May 29, 2011, the car- stock options granted $ 4.12 $ 3.20 $ 4.70 rying value of HDJ consisted of our investment of $61 Assumptions: million and goodwill of $524 million. Sustained declines Risk-free interest rate 2.9% 3.7% 4.4% in business results or an increase in the weighted aver- Expected term 8.5 years 8.5 years 8.5 years age cost of capital may adversely aﬀ ect the fair value Expected volatility 18.5% 18.9% 16.1% of our investment in HDJ, and could result in a future Dividend yield 3.0% 3.4% 2.7% impairment to our investment.

Annual Report 2011 35 To the extent that actual outcomes diff er from our resolution of uncertain tax positions will aff ect earnings assumptions, we are not required to true up grant- in the quarter of such change. date fair value-based expense to fi nal intrinsic values. We are subject to federal income taxes in the United However, these diff erences can impact the classifi ca- States as well as various state, local, and foreign jurisdiction of cash tax benefi ts realized upon exercise of stock tions. A number of years may elapse before an uncertain options, as explained in the following two paragraphs. tax position is audited and fi nally resolved. While it is Furthermore, historical data has a signifi cant bearing on oft en diffi cult to predict the fi nal outcome or the timing our forward-looking assumptions. Signifi cant variances of resolution of any particular uncertain tax position, between actual and predicted experience could lead to we believe that our liabilities for income taxes refl ect the prospective revisions in our assumptions, which could most likely outcome. We adjust these liabilities, as well then signifi cantly impact the year-over-year comparabil- as the related interest, in light of changing facts and cir- ity of stock-based compensation expense. cumstances. Settlement of any particular position would Any corporate income tax benefi t realized upon exer- usually require the use of cash. cise or vesting of an award in excess of that previously Th e number of years with open tax audits varies recognized in earnings (referred to as a windfall tax ben- depending on the tax jurisdiction. Our major taxing juris- efi t) is presented in the Consolidated Statements of Cash dictions include the United States (federal and state) and Flows as a fi nancing cash fl ow. Th e actual impact on Canada. Th e IRS has completed its review of our fed- future years’ fi nancing cash fl ow will depend, in part, eral income tax returns for fi scal years 2008 and prior on the volume of employee stock option exercises dur- and has proposed adjustments related to the amount of ing a particular year and the relationship between the research and development tax credits claimed. We have exercise-date market value of the underlying stock and appealed these proposed adjustments. the original grant-date fair value previously determined During fi scal 2011, we reached a settlement with the for fi nancial reporting purposes. IRS concerning certain corporate income tax adjust- Realized windfall tax benefi ts are credited to addi- ments for fi scal years 2002 to 2008. Th e adjustments tional paid-in capital within the Consolidated Balance primarily relate to the amount of capital loss, deprecia- Sheets. Realized shortfall tax benefi ts (amounts which tion, and amortization we reported as a result of the are less than that previously recognized in earnings) sale of noncontrolling interests in our GMC subsidiary. are fi rst off set against the cumulative balance of wind- As a result, we recorded a $108 million reduction in our fall tax benefi ts, if any, and then charged directly to total liabilities for uncertain tax positions in fi scal 2011. income tax expense, potentially resulting in volatility We made payments totaling $385 million in fi scal 2011 in our consolidated eff ective income tax rate. We cal- related to this settlement. In addition, we made a pay- culated a cumulative amount of windfall tax benefi ts ment of $18 million in fi scal 2009 related to adjustments from post-1995 fi scal years for the purpose of account- made at the IRS exam level for audits of fi scal years ing for future shortfall tax benefi ts and currently have 2004 to 2006. suffi cient cumulative windfall tax benefi ts to absorb pro- Also during fi scal 2011, the Superior Court of the State jected arising shortfalls, such that we do not currently of California issued an adverse decision concerning our expect future earnings to be aff ected by this provision. state income tax apportionment calculations. As a result, However, as employee stock option exercise behavior is we recorded a $12 million increase in our total liabilities not within our control, it is possible that materially dif- for uncertain tax positions. We believe our positions ferent reported results could occur if diff erent assump- are supported by substantial technical authority and tions or conditions were to prevail. have appealed this decision. We do not expect to make a payment related to this matter until it is defi nitively Income Taxes We apply a more-likely-than-not thresh- resolved. old to the recognition and derecognition of uncertain In fi scal 2009, the U.S. Court of Appeals for the Eighth tax positions. Accordingly we recognize the amount of Circuit issued an opinion reversing a district court deci- tax benefi t that has a greater than 50 percent likelihood sion rendered in fi scal 2008. As a result, we recorded of being ultimately realized upon settlement. Future $53 million (including interest) of income tax expense in changes in judgment related to the expected ultimate fi scal 2009 related to the reversal of cumulative income tax benefi ts from this uncertain tax matter recognized

36 General Mills in fi scal years 1992 through 2008. All outstanding liabili- to fund related trusts for certain employees and retirees ties associated with this matter were paid during fi scal on an annual basis. We did not make voluntary contribu- 2011. tions to these plans in fi scal 2011. Th e Patient Protection Various tax examinations by United States state tax- and Aff ordable Care Act, as amended by the Health Care ing authorities could be conducted for any open tax year, and Education Reconciliation Act of 2010, was signed which vary by jurisdiction, but are generally from 3 to 5 into law in March 2010. We have not fully evaluated years. Currently, several state examinations are in prog- the eff ect of the Act, including possible modifi cations to ress. Th e Canada Revenue Agency (CRA) has completed provider plans, but it could aff ect the future cost of our its review of our income tax returns in Canada for fi scal benefi t plans. years 2003 to 2005. Th e CRA has raised assessments for these years that we are currently appealing. We Postemployment Benefi t Plans Under certain circum- believe our positions are supported by substantial tech- stances, we also provide accruable benefi ts to former nical authority and are vigorously defending our posi- or inactive employees in the United States, Canada, and tions. We do not anticipate that any United States or Mexico, and members of our Board of Directors, including Canadian tax adjustments will have a signifi cant impact severance and certain other benefi ts payable upon death. on our fi nancial position or results of operations. We recognize an obligation for any of these benefi ts that As of May 29, 2011, our total liability for uncertain vest or accumulate with service. Postemployment ben- tax positions and the associated accrued interest and efi ts that do not vest or accumulate with service (such as penalties was $280 million. We do not expect to pay any severance based solely on annual pay rather than years amounts related to uncertain tax positions or accrued of service) are charged to expense when incurred. Our interest in the next 12 months. We are not able to rea- postemployment benefi t plans are unfunded. sonably estimate the timing of future cash fl ows beyond We recognize benefi ts provided during retirement or 12 months due to uncertainties in the timing of tax audit following employment over the plan participants’ active outcomes. working life. Accordingly, we make various assumptions to predict and measure costs and obligations many years Defi ned Benefi t Pension, Other Postretirement And prior to the settlement of our obligations. Assumptions Postemployment Benefi t Plans that require signifi cant management judgment and have a material impact on the measurement of our net peri- Defi ned Benefi t Pension Plans We have defi ned benefi t odic benefi t expense or income and accumulated ben- pension plans covering most United States, Canadian, efi t obligations include the long-term rates of return on and United Kingdom employees. Benefi ts for salaried plan assets, the interest rates used to discount the obli- employees are based on length of service and fi nal aver- gations for our benefi t plans, and the health care cost age compensation. Benefi ts for hourly employees include trend rates. various monthly amounts for each year of credited service. Our funding policy is consistent with the require- Expected Rate of Return on Plan Assets Our expected ments of applicable laws. We made $200 million of rate of return on plan assets is determined by our asset voluntary contributions to our principal domestic plans allocation, our historical long-term investment perfor- in fi scal 2011. We do not expect to be required to make mance, our estimate of future long-term returns by asset any contributions in fi scal 2012. Our principal domestic class (using input from our actuaries, investment ser- retirement plan covering salaried employees has a provi- vices, and investment managers), and long-term infl ation sion that any excess pension assets would be allocated assumptions. We review this assumption annually for to active participants if the plan is terminated within each plan, however, our annual investment performance fi ve years of a change in control. for one particular year does not, by itself, signifi cantly infl uence our evaluation. Other Postretirement Benefi t Plans We also sponsor Th e investment objective for our defi ned benefi t pen- plans that provide health care benefi ts to the majority sion and other postretirement benefi t plans is to secure of our United States and Canadian retirees. Th e salaried the benefi t obligations to participants at a reasonable health care benefi t plan is contributory, with retiree con- cost to us. Our goal is to optimize the long-term return tributions based on years of service. We make decisions on plan assets at a moderate level of risk. Th e defi ned

Annual Report 2011 37 benefi t pension and other postretirement portfolios are corporate bond yields, to develop a forward interest rate broadly diversifi ed across asset classes. Within asset curve, including a margin to that index based on our classes, the portfolios are further diversified across credit risk. Th is forward interest rate curve is applied investment styles and investment organizations. For the to our expected future cash outfl ows to determine our defi ned benefi t pension and other postretirement benefi t discount rate assumptions. plans, the long-term investment policy allocations are: Our weighted-average discount rates were as follows: 30 percent to equities in the United States; 20 percent to international equities; 10 percent to private equities; Weighted-average Discount Rates 30 percent to fi xed income; and 10 percent to real assets Defi ned Other (real estate, energy, and timber). Th e actual allocations Benefi t Postretirement Postemployment to these asset classes may vary tactically around the Pension Benefi t Benefi t Plans Plans Plans long-term policy allocations based on relative market valuations. Obligations as of May 29, Our historical investment returns (compound annual 2011, and fi scal 2012 growth rates) for our United States defi ned benefi t pen- expense 5.45% 5.35% 4.77% sion and other postretirement plan assets were 20.3 Obligations as of May 30, percent, 5.6 percent, 7.5 percent, 9.2 percent, and 10.0 2010, and fi scal 2011 expense 5.85% 5.80% 5.12% percent for the 1, 5, 10, 15, and 20 year periods ended Fiscal 2010 expense 7.49% 7.45% 7.06% May 29, 2011. Our principal defi ned benefi t pension and other postretirement plans in the United States have an expected Lowering the discount rates by 50 basis points would return on plan assets of 9.6 percent. On a weighted- increase our net defi ned benefi t pension, other postre- average basis, the expected rate of return for all defi ned tirement, and postemployment benefi t plan expense for benefi t plans was 9.53 percent for fi scal 2011, 9.55 per- fi scal 2012 by approximately $36.9 million. All obliga- cent for fi scal 2010, and 9.55 percent for fi scal 2009. tion-related experience gains and losses are amortized Lowering the expected long-term rate of return on using a straight-line method over the average remaining assets by 50 basis points would increase our net pension service period of active plan participants. and postretirement expense by $24 million for fi scal 2012. A market-related valuation basis is used to reduce Health Care Cost Trend Rates We review our health year-to-year expense volatility. Th e market-related valu- care cost trend rates annually. Our review is based on ation recognizes certain investment gains or losses over data we collect about our health care claims experience a fi ve-year period from the year in which they occur. and information provided by our actuaries. Th is infor- Investment gains or losses for this purpose are the dif- mation includes recent plan experience, plan design, ference between the expected return calculated using overall industry experience and projections, and assump- the market-related value of assets and the actual return tions used by other similar organizations. Our initial based on the market-related value of assets. Our outside health care cost trend rate is adjusted as necessary to actuaries perform these calculations as part of our deter- remain consistent with this review, recent experiences, mination of annual expense or income. and short-term expectations. Our initial health care cost trend rate assumption is 8.5 percent for all retirees. Discount Rates Our discount rate assumptions are Rates are graded down annually until the ultimate trend determined annually as of the last day of our fi scal year rate of 5.2 percent is reached in 2019 for all retirees. for our defi ned benefi t pension, other postretirement, Th e trend rates are applicable for calculations only if and postemployment benefi t plan obligations. We also the retirees’ benefi ts increase as a result of health care use the same discount rates to determine defi ned ben- infl ation. Th e ultimate trend rate is adjusted annually, as efi t pension, other postretirement, and postemployment necessary, to approximate the current economic view on benefi t plan income and expense for the following fi s- the rate of long-term infl ation plus an appropriate health cal year. We work with our actuaries to determine the care cost premium. Assumed trend rates for health care timing and amount of expected future cash outfl ows to costs have an important eff ect on the amounts reported plan participants and, using the top quartile of AA-rated for the other postretirement benefi t plans.

38 General Mills A one percentage point change in the health care cost of the future impacts of several of the Act’s provisions trend rate would have the following eﬀ ects: are incorporated into our postretirement beneﬁ t liability

One One including the elimination of lifetime maximums and the Percentage Percentage imposition of an excise tax on high cost health plans. Point Point In Millions Increase Decrease These changes resulted in a $24 million increase in our postretirement benefi t liability in fi scal 2010. Given Eff ect on the aggregate of the service and the complexity of the Act, the extended time period interest cost components in fi scal 2012 $ 6.2 $ (5.4) over which the reforms will be implemented, and the Eff ect on the other postretirement accumulated benefi t obligation as of unknown impact of future regulatory guidance, further May 29, 2011 82.4 (73.6) fi nancial impacts to our postretirement benefi t liability and related future expense may occur. Any arising health care claims cost-related experience gain or loss is recognized in the calculation of expected RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS future claims. Once recognized, experience gains and losses are amortized using a straight-line method over In May 2011, the Financial Accounting Standards Board 15 years, resulting in at least the minimum amortization (FASB) issued new accounting guidance for fair value required being recorded. measurements providing common fair value measurement and disclosure requirements. This guidance is Financial Statement Impact In fi scal 2011, we recorded eff ective for interim and annual periods beginning aft er net defi ned benefi t pension, other postretirement, and December 15, 2011, which for us is the fourth quarter postemployment benefi t plan expense of $95 million of fi scal 2012. We do not expect this guidance to have a compared to $11 million of income in fi scal 2010 and $4 material impact on our results of operations or fi nancial million of income in fi scal 2009. As of May 29, 2011, we position. had cumulative unrecognized actuarial net losses of $1.3 In June 2011, the FASB issued new accounting guid- billion on our defi ned benefi t pension plans and $180 ance for the presentation of other comprehensive income million on our postretirement and postemployment ben- (OCI). Th is guidance requires entities to present net efi t plans, mainly as the result of declines in the values income and OCI in either a single continuous statement of plan assets. Th ese unrecognized actuarial net losses or in separate consecutive statements. Th e guidance does will result in increases in our future pension expense not change the components of net income or OCI, when and increases in postretirement expense since they cur- OCI should be reclassifi ed to net income, or the earnings rently exceed the corridors defi ned by GAAP. per share calculation. Th e guidance is eff ective for fi scal We use the Retirement Plans (RP) 2000 Mortality years beginning aft er December 15, 2011, which for us Table projected forward to our plans’ measurement dates is the fi rst quarter of fi scal 2013. Th is guidance will not to calculate the year-end defi ned benefi t pension, other impact our results of operations or fi nancial position. postretirement, and postemployment benefi t obligations and annual expense. Actual future net defi ned benefi t pension, other postretirement, and postemployment benefi t plan income or expense will depend on investment performance, changes in future discount rates, changes in health care cost trend rates, and other factors related to the popula- tions participating in these plans. The Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act of 2010 was signed into law in March 2010. Th e Act codifi es health care reforms with staggered eff ective dates from 2010 to 2018 with many provisions in the Act requiring the issuance of additional guidance from various government agencies. Estimates

Annual Report 2011 39 CAUTIONARY STATEMENT RELEVANT TO FORWARD- acceptance of new products and product improvements; LOOKING INFORMATION FOR THE PURPOSE OF “SAFE consumer reaction to pricing actions and changes in HARBOR” PROVISIONS OF THE PRIVATE SECURITIES promotion levels; acquisitions or dispositions of busi- LITIGATION REFORM ACT OF 1995 nesses or assets; changes in capital structure; changes in laws and regulations, including labeling and advertising Th is report contains or incorporates by reference for- regulations; impairments in the carrying value of good- ward-looking statements within the meaning of the will, other intangible assets, or other long-lived assets, Private Securities Litigation Reform Act of 1995 that are or changes in the useful lives of other intangible assets; based on our current expectations and assumptions. We changes in accounting standards and the impact of sig- also may make written or oral forward-looking state- nifi cant accounting estimates; product quality and safety ments, including statements contained in our fi lings issues, including recalls and product liability; changes with the SEC and in our reports to stockholders. in consumer demand for our products; eff ectiveness Th e words or phrases “will likely result,” “are expected of advertising, marketing, and promotional programs; to,” “will continue,” “is anticipated,” “estimate,” “plan,” changes in consumer behavior, trends, and preferences, “project,” or similar expressions identify “forward-looking including weight loss trends; consumer perception of statements” within the meaning of the Private Securities health-related issues, including obesity; consolidation Litigation Reform Act of 1995. Such statements are sub- in the retail environment; changes in purchasing and ject to certain risks and uncertainties that could cause inventory levels of signifi cant customers; fl uctuations actual results to diff er materially from historical results in the cost and availability of supply chain resources, and those currently anticipated or projected. We wish including raw materials, packaging, and energy; disrup- to caution you not to place undue reliance on any such tions or ineffi ciencies in the supply chain; volatility in forward-looking statements. the market value of derivatives used to manage price In connection with the “safe harbor” provisions of risk for certain commodities; benefit plan expenses the Private Securities Litigation Reform Act of 1995, we due to changes in plan asset values and discount rates are identifying important factors that could aff ect our used to determine plan liabilities; failure of our informa- fi nancial performance and could cause our actual results tion technology systems; foreign economic conditions, in future periods to diff er materially from any current including currency rate fl uctuations; and political unrest opinions or statements. in foreign markets and economic uncertainty due to ter- Our future results could be aff ected by a variety of rorism or war. factors, such as: competitive dynamics in the consumer You should also consider the risk factors that we iden- foods industry and the markets for our products, includ- tify in Item 1A of our 2011 Form 10-K, which could also ing new product introductions, advertising activities, aff ect our future results. pricing actions, and promotional activities of our com- We undertake no obligation to publicly revise any petitors; economic conditions, including changes in infl a- forward-looking statements to refl ect events or circum- tion rates, interest rates, tax rates, or the availability of stances aft er the date of those statements or to refl ect capital; product development and innovation; consumer the occurrence of anticipated or unanticipated events.

40 General Mills Quantitative and Qualitative foreign currency cash fl ow exposures. We also generally swap our foreign-denominated commercial paper bor- Disclosures About Market Risk rowings and nonfunctional currency intercompany loans We are exposed to market risk stemming from changes in back to U.S. dollars or the functional currency; the gains interest rates, foreign exchange rates, commodity prices, or losses on these derivatives off set the foreign currency and equity prices. Changes in these factors could cause revaluation gains or losses recorded in earnings on the fl uctuations in our earnings and cash fl ows. In the nor- associated borrowings. We generally do not hedge more mal course of business, we actively manage our exposure than 18 months forward. to these market risks by entering into various hedging We also have many net investments in foreign sub- transactions, authorized under established policies that sidiaries that are denominated in euros. We previously place clear controls on these activities. Th e counterpar- hedged a portion of these net investments by issu- ties in these transactions are generally highly rated insti- ing euro-denominated commercial paper and foreign tutions. We establish credit limits for each counterparty. exchange forward contracts. As of May 29, 2011, we had Our hedging transactions include but are not limited to a deferred net foreign currency transaction losses of $96 variety of derivative fi nancial instruments. million in AOCI associated with hedging activity.

INTEREST RATE RISK COMMODITY PRICE RISK

We are exposed to interest rate volatility with regard Many commodities we use in the production and dis- to future issuances of fi xed-rate debt, and existing and tribution of our products are exposed to market price future issuances of fl oating-rate debt. Primary exposures risks. We utilize derivatives to manage price risk for our include U.S. Treasury rates, LIBOR, and commercial paper principal ingredients and energy costs, including grains rates in the United States and Europe. We use interest (oats, wheat, and corn), oils (principally soybean), non-fat rate swaps and forward-starting interest rate swaps to dry milk, natural gas, and diesel fuel. Our primary objec- hedge our exposure to interest rate changes, to reduce the tive when entering into these derivative contracts is to volatility of our fi nancing costs, and to achieve a desired achieve certainty with regard to the future price of com- proportion of fi xed versus fl oating-rate debt, based on modities purchased for use in our supply chain. We man- current and projected market conditions. Generally under age our exposures through a combination of purchase these swaps, we agree with a counterparty to exchange orders, long-term contracts with suppliers, exchange- the diff erence between fi xed-rate and fl oating-rate inter- traded futures and options, and over-the-counter options est amounts based on an agreed upon notional principal and swaps. We off set our exposures based on current amount. and projected market conditions and generally seek to As of May 29, 2011, we had interest rate swaps with acquire the inputs at as close to our planned cost as $1.3 billion of aggregate notional principal amount out- possible. standing, with a net notional amount of $838 million As of May 29, 2011, the net notional value of commod- that converts fl oating-rate notes to fi xed rates. ity derivatives was $348 million, of which $161 million related to agricultural inputs and $187 million related to FOREIGN EXCHANGE RISK energy inputs. Th ese contracts relate to inputs that generally will be utilized within the next 12 months. Foreign currency fl uctuations aff ect our net investments in foreign subsidiaries and foreign currency cash fl ows EQUITY INSTRUMENTS related to foreign-denominated commercial paper, third party purchases, intercompany loans, and product ship- Equity price movements aff ect our compensation expense ments. We are also exposed to the translation of foreign as certain investments made by our employees in our currency earnings to the U.S. dollar. Our principal expo- deferred compensation plan are revalued. We occasion- sures are to the Australian dollar, British pound sterling, ally use equity swaps to manage this risk, but no swaps Canadian dollar, Chinese renminbi, euro, Japanese yen, were outstanding as of May 29, 2011. Swiss franc, and Mexican peso. We mainly use foreign currency forward contracts to selectively hedge our

Annual Report 2011 41 VALUE AT RISK value of the underlying exposure. Th e positions included in the calculations were: debt; investments; interest rate Th e estimates in the table below are intended to mea- swaps; foreign exchange forwards; commodity swaps, sure the maximum potential fair value we could lose in futures and options; and equity instruments. Th e calcu- one day from adverse changes in market interest rates, lations do not include the underlying foreign exchange foreign exchange rates, commodity prices, and equity and commodities-related positions that are off set by prices under normal market conditions. A Monte Carlo these market-risk-sensitive instruments. value-at-risk (VAR) methodology was used to quantify Th e table below presents the estimated maximum the market risk for our exposures. Th e models assumed potential VAR arising from a one-day loss in fair value normal market conditions and used a 95 percent confi - for our interest rate, foreign currency, commodity, and dence level. equity market-risk-sensitive instruments outstanding as Th e VAR calculation used historical interest rates, for- of May 29, 2011, and May 30, 2010, and the average fair eign exchange rates, and commodity and equity prices value impact during the year ended May 29, 2011. from the past year to estimate the potential volatility and correlation of these rates in the future. Th e market Fair Value Impact data were drawn from the RiskMetrics™ data set. Th e Average May 29, During May 30, calculations are not intended to represent actual losses In Millions 2011 Fiscal 2011 2010 in fair value that we expect to incur. Further, since the Interest rate instruments $26.5 $27.1 $27.7 hedging instrument (the derivative) inversely correlates Foreign currency instruments 8.7 5.8 4.3 with the underlying exposure, we would expect that any Commodity instruments 3.9 4.9 4.8 loss or gain in the fair value of our derivatives would be generally off set by an increase or decrease in the fair

42 General Mills Reports of Management and Independent Registered Public Accounting Firm

REPORT OF MANAGEMENT RESPONSIBILITIES REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM Th e management of General Mills, Inc. is responsible for the fairness and accuracy of the consolidated fi nan- Th e Board of Directors and Stockholders cial statements. Th e statements have been prepared in General Mills, Inc.: accordance with accounting principles that are generally accepted in the United States, using management’s We have audited the accompanying consolidated bal- best estimates and judgments where appropriate. Th e ance sheets of General Mills, Inc. and subsidiaries as of fi nancial information throughout the Annual Report on May 29, 2011, and May 30, 2010, and the related con- Form 10-K is consistent with our consolidated fi nancial solidated statements of earnings, total equity and com- statements. prehensive income, and cash fl ows for each of the fi scal Management has established a system of internal con- years in the three-year period ended May 29, 2011. In trols that provides reasonable assurance that assets are connection with our audits of the consolidated fi nancial adequately safeguarded and transactions are recorded statements, we have audited the accompanying fi nancial accurately in all material respects, in accordance with statement schedule. We also have audited General Mills, management’s authorization. We maintain a strong audit Inc.’s internal control over fi nancial reporting as of May program that independently evaluates the adequacy and 29, 2011, based on criteria established in Internal Control eff ectiveness of internal controls. Our internal controls – Integrated Framework issued by the Committee of provide for appropriate separation of duties and respon- Sponsoring Organizations of the Treadway Commission sibilities, and there are documented policies regarding (COSO). General Mills, Inc.’s management is responsible use of our assets and proper fi nancial reporting. Th ese for these consolidated fi nancial statements and fi nancial formally stated and regularly communicated policies statement schedule, for maintaining eff ective internal demand highly ethical conduct from all employees. control over fi nancial reporting, and for its assessment Th e Audit Committee of the Board of Directors meets of the eff ectiveness of internal control over fi nancial regularly with management, internal auditors, and our reporting, included in Management’s Report on Internal independent registered public accounting fi rm to review Control over Financial Reporting. Our responsibility is to internal control, auditing, and fi nancial reporting mat- express an opinion on these consolidated fi nancial state- ters. The independent registered public accounting ments and fi nancial statement schedule and an opinion fi rm, internal auditors, and employees have full and free on the Company’s internal control over fi nancial report- access to the Audit Committee at any time. ing based on our audits. The Audit Committee reviewed and approved the We conducted our audits in accordance with the stan- Company’s annual financial statements. The Audit dards of the Public Company Accounting Oversight Committee recommended, and the Board of Directors Board (United States). Th ose standards require that we approved, that the consolidated fi nancial statements be plan and perform the audits to obtain reasonable assur- included in the Annual Report. Th e Audit Committee ance about whether the fi nancial statements are free of also appointed KPMG LLP to serve as the Company’s material misstatement and whether eff ective internal independent registered public accounting fi rm for fi scal control over fi nancial reporting was maintained in all 2012, subject to ratifi cation by the stockholders at the material respects. Our audits of the consolidated fi nancial annual meeting. statements included examining, on a test basis, evidence supporting the amounts and disclosures in the fi nancial statements, assessing the accounting principles used and signifi cant estimates made by management, and evaluating the overall fi nancial statement presentation. Our K. J. Powell D. L. Mulligan audit of internal control over fi nancial reporting included Chairman of the Board Executive Vice President obtaining an understanding of internal control over and Chief Executive Offi cer and Chief Financial fi nancial reporting, assessing the risk that a material Offi cer weakness exists, and testing and evaluating the design July 8, 2011 and operating eff ectiveness of internal control based on the assessed risk. Our audits also included performing

Annual Report 2011 43 such other procedures as we considered necessary in controls may become inadequate because of changes in the circumstances. We believe that our audits provide a conditions, or that the degree of compliance with the reasonable basis for our opinions. policies or procedures may deteriorate. A company’s internal control over fi nancial reporting In our opinion, the consolidated fi nancial statements is a process designed to provide reasonable assurance referred to above present fairly, in all material respects, regarding the reliability of fi nancial reporting and the the fi nancial position of General Mills, Inc. and subsidiar- preparation of fi nancial statements for external pur- ies as of May 29, 2011, and May 30, 2010, and the results poses in accordance with generally accepted accounting of their operations and their cash fl ows for each of the principles. A company’s internal control over fi nancial fi scal years in the three-year period ended May 29, 2011, reporting includes those policies and procedures that (1) in conformity with U.S. generally accepted accounting pertain to the maintenance of records that, in reason- principles. Also in our opinion, the accompanying fi nan- able detail, accurately and fairly refl ect the transactions cial statement schedule, when considered in relation to and dispositions of the assets of the company; (2) pro- the basic consolidated fi nancial statements taken as a vide reasonable assurance that transactions are recorded whole, presents fairly, in all material respects, the infor- as necessary to permit preparation of fi nancial state- mation set forth therein. Also in our opinion, General ments in accordance with generally accepted account- Mills, Inc. maintained, in all material respects, eff ective ing principles, and that receipts and expenditures of the internal control over fi nancial reporting as of May 29, company are being made only in accordance with autho- 2011, based on criteria established in Internal Control rizations of management and directors of the company; – Integrated Framework issued by the Committee of and (3) provide reasonable assurance regarding preven- Sponsoring Organizations of the Treadway Commission. tion or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material eff ect on the fi nancial statements. Because of its inherent limitations, internal control over fi nancial reporting may not prevent or detect mis- Minneapolis, Minnesota statements. Also, projections of any evaluation of eff ec- July 8, 2011 tiveness to future periods are subject to the risk that

44 General Mills Consolidated Statements of Earnings

GENERAL MILLS, INC. AND SUBSIDIARIES

Fiscal Year In Millions, Except per Share Data 2011 2010 2009 Net sales $ 14,880.2 $ 14,635.6 $ 14,555.8 Cost of sales 8,926.7 8,835.4 9,380.9 Selling, general, and administrative expenses 3,192.0 3,162.7 2,893.2 Divestitures (gain), net (17.4) — (84.9) Restructuring, impairment, and other exit costs 4.4 31.4 41.6 Operating proﬁ t 2,774.5 2,606.1 2,325.0 Interest, net 346.3 401.6 382.8 Earnings before income taxes and aft er-tax earnings from joint ventures 2,428.2 2,204.5 1,942.2 Income taxes 721.1 771.2 720.4 Aft er-tax earnings from joint ventures 96.4 101.7 91.9 Net earnings, including earnings attributable to noncontrolling interests 1,803.5 1,535.0 1,313.7 Net earnings attributable to noncontrolling interests 5.2 4.5 9.3 Net earnings attributable to General Mills $ 1,798.3 $ 1,530.5 $ 1,304.4 Earnings per share - basic $ 2.80 $ 2.32 $ 1.96 Earnings per share - diluted $ 2.70 $ 2.24 $ 1.90 Dividends per share $ 1.12 $ 0.96 $ 0.86

See accompanying notes to consolidated ﬁ nancial statements.

Annual Report 2011 45 Consolidated Balance Sheets

GENERAL MILLS, INC. AND SUBSIDIARIES

In Millions, Except Par Value May 29, 2011 May 30, 2010 ASSETS Current assets: Cash and cash equivalents $ 619.6 $ 673.2 Receivables 1,162.3 1,041.6 Inventories 1,609.3 1,344.0 Deferred income taxes 27.3 42.7 Prepaid expenses and other current assets 483.5 378.5 Total current assets 3,902.0 3,480.0 Land, buildings, and equipment 3,345.9 3,127.7 Goodwill 6,750.8 6,592.8 Other intangible assets 3,813.3 3,715.0 Other assets 862.5 763.4 Total assets $ 18,674.5 $ 17,678.9

LIABILITIES AND EQUITY Current liabilities: Accounts payable $ 995.1 $ 849.5 Current portion of long-term debt 1,031.3 107.3 Notes payable 311.3 1,050.1 Other current liabilities 1,321.5 1,762.2 Total current liabilities 3,659.2 3,769.1 Long-term debt 5,542.5 5,268.5 Deferred income taxes 1,127.4 874.6 Other liabilities 1,733.2 2,118.7 Total liabilities 12,062.3 12,030.9 Stockholders’ equity: Common stock, 754.6 shares issued, $0.10 par value 75.5 75.5 Additional paid-in capital 1,319.8 1,307.1 Retained earnings 9,191.3 8,122.4 Common stock in treasury, at cost, shares of 109.8 and 98.1 (3,210.3) (2,615.2) Accumulated other comprehensive loss (1,010.8) (1,486.9) Total stockholders’ equity 6,365.5 5,402.9 Noncontrolling interests 246.7 245.1 Total equity 6,612.2 5,648.0 Total liabilities and equity $ 18,674.5 $ 17,678.9

See accompanying notes to consolidated ﬁ nancial statements.

46 General Mills Consolidated Statements of Total Equity and Comprehensive Income

GENERAL MILLS, INC. AND SUBSIDIARIES

$.10 Par Value Common Stock (One Billion Shares Authorized) Issued Treasury Accumulated Additional Other Par Paid-In Retained Comprehensive Noncontrolling In Millions, Except per Share Data Shares Amount Capital Shares Amount Earnings Income (Loss) Interests Total

Balance as of May 25, 2008 754.6 $75.5 $1,111.3 (79.6) $(1,658.4) $6,510.7 $ 173.1 $246.6 $6,458.8 Comprehensive income: Net earnings, including earnings attributable to noncontrolling interests 1,304.4 9.3 1,313.7 Other comprehensive loss (1,050.9) (1.2) (1,052.1) Total comprehensive income 261.6 Cash dividends declared ($0.86 per share) (579.5) (579.5) Stock compensation plans (includes income tax benefi ts of $94.0) 23.0 19.6 443.1 466.1 Shares purchased (40.4) (1,296.4) (1,296.4) Shares issued for acquisition 16.4 1.8 38.6 55.0 Unearned compensation related to restricted stock unit awards (56.2) (56.2) Distributions to noncontrolling interest holders (10.5) (10.5) Earned compensation 117.6 117.6 Balance as of May 31, 2009 754.6 75.5 1,212.1 (98.6) (2,473.1) 7,235.6 (877.8) 244.2 5,416.5 Comprehensive income: Net earnings, including earnings attributable to noncontrolling interests 1,530.5 4.5 1,535.0 Other comprehensive income (loss) (609.1) 0.2 (608.9) Total comprehensive income 926.1 Cash dividends declared ($0.96 per share) (643.7) (643.7) Stock compensation plans (includes income tax benefi ts of $114.0) 53.3 21.8 549.7 603.0 Shares purchased (21.3) (691.8) (691.8) Unearned compensation related to restricted stock unit awards (65.6) (65.6) Distributions to noncontrolling interest holders (3.8) (3.8) Earned compensation 107.3 107.3 Balance as of May 30, 2010 754.6 75.5 1,307.1 (98.1) (2,615.2) 8,122.4 (1,486.9) 245.1 5,648.0 Comprehensive income: Net earnings, including earnings attributable to noncontrolling interests 1,798.3 5.2 1,803.5 Other comprehensive income 476.1 0.7 476.8 Total comprehensive income 2,280.3 Cash dividends declared ($1.12 per share) (729.4) (729.4) Stock compensation plans (includes income tax benefi ts of $106.2) (22.2) 20.1 568.4 546.2 Shares purchased (31.8) (1,163.5) (1,163.5) Unearned compensation related to restricted stock unit awards (70.4) (70.4) Distributions to noncontrolling interest holders (4.3) (4.3) Earned compensation 105.3 105.3 Balance as of May 29, 2011 754.6 $75.5 $1,319.8 (109.8) $(3,210.3) $9,191.3 $(1,010.8) $246.7 $6,612.2

See accompanying notes to consolidated ﬁ nancial statements.

Annual Report 2011 47 Consolidated Statements of Cash Flows

GENERAL MILLS, INC. AND SUBSIDIARIES

Fiscal Year In Millions 2011 2010 2009

Cash Flows - Operating Activities Net earnings, including earnings attributable to noncontrolling interests $ 1,803.5 $ 1,535.0 $ 1,313.7 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation and amortization 472.6 457.1 453.6 Aft er-tax earnings from joint ventures (96.4) (101.7) (91.9) Stock-based compensation 105.3 107.3 117.7 Deferred income taxes 205.3 22.3 215.8 Tax benefi t on exercised options (106.2) (114.0) (89.1) Distributions of earnings from joint ventures 72.7 88.0 68.5 Pension and other postretirement benefi t plan contributions (220.8) (17.2) (220.3) Pension and other postretirement benefi t plan expense (income) 73.6 (37.9) (27.5) Divestitures (gain), net (17.4) — (84.9) Gain on insurance settlement — — (41.3) Restructuring, impairment, and other exit costs (income) (1.3) 23.4 31.3 Changes in current assets and liabilities (720.9) 143.4 176.9 Other, net (43.2) 75.5 5.7 Net cash provided by operating activities 1,526.8 2,181.2 1,828.2 Cash Flows - Investing Activities Purchases of land, buildings, and equipment (648.8) (649.9) (562.6) Acquisitions (123.3) — — Investments in affi liates, net (1.8) (130.7) 5.9 Proceeds from disposal of land, buildings, and equipment 4.1 7.4 4.1 Proceeds from divestiture of product lines 34.4 — 244.7 Proceeds from insurance settlement — — 41.3 Other, net 20.3 52.0 (22.3) Net cash used by investing activities (715.1) (721.2) (288.9) Cash Flows - Financing Activities Change in notes payable (742.6) 235.8 (1,390.5) Issuance of long-term debt 1,200.0 — 1,850.0 Payment of long-term debt (7.4) (906.9) (370.3) Proceeds from common stock issued on exercised options 410.4 388.8 305.2 Tax benefi t on exercised options 106.2 114.0 89.1 Purchases of common stock for treasury (1,163.5) (691.8) (1,296.4) Dividends paid (729.4) (643.7) (579.5) Other, net (10.3) — (12.1) Net cash used by fi nancing activities (936.6) (1,503.8) (1,404.5) Eff ect of exchange rate changes on cash and cash equivalents 71.3 (32.8) (46.0) Increase (decrease) in cash and cash equivalents (53.6) (76.6) 88.8 Cash and cash equivalents - beginning of year 673.2 749.8 661.0 Cash and cash equivalents - end of year $ 619.6 $ 673.2 $ 749.8 Cash Flow from Changes in Current Assets and Liabilities: Receivables $ (69.8) $ (121.1) $ 81.8 Inventories (240.0) (16.7) (28.1) Prepaid expenses and other current assets (96.0) 53.5 30.2 Accounts payable 109.0 69.6 (116.4) Other current liabilities (424.1) 158.1 209.4 Changes in current assets and liabilities $ (720.9) $ 143.4 $ 176.9

See accompanying notes to consolidated ﬁ nancial statements.

48 General Mills Notes to Consolidated Financial Statements

GENERAL MILLS, INC. AND SUBSIDIARIES

NOTE 1. BASIS OF PRESENTATION AND Basis of Presentation Our Consolidated Financial RECLASSIFICATIONS Statements include the accounts of General Mills, Inc. and all subsidiaries in which we have a controlling fi nan- Income Statement Classifi cations At the beginning of cial interest. Intercompany transactions and accounts fi scal 2011, we revised the classifi cation of certain reve- are eliminated in consolidation. nues and expenses to better align our income statement Our fi scal year ends on the last Sunday in May, except line items with how we manage our business. We have for our operations in Europe and China, which have an revised the classifi cation of amounts previously reported April year-end. Fiscal 2011 and 2010 each consisted of 52 in our Consolidated Statements of Earnings to conform weeks, and fi scal 2009 consisted of 53 weeks. to our fi scal 2011 presentation. Th ese revised classifi - cations had no eff ect on previously reported net earn- NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING ings attributable to General Mills or earnings per share. POLICIES Th ese changes include: • Revising the classifi cation of certain customer logis- Cash and Cash Equivalents We consider all investments tics allowances as a reduction of net sales (previously purchased with an original maturity of three months or recorded as cost of sales). Th e impact of this change was less to be cash equivalents. a decrease in net sales of $160.9 million in fi scal 2010 and $157.5 million in fi scal 2009 and a corresponding Inventories All inventories in the United States other decrease to cost of sales in each of the years. than grain are valued at the lower of cost, using the last- • Revising the classification of certain promotion- in, fi rst-out (LIFO) method, or market. Grain inventories related costs, customer allowances, and supply chain and all related cash contracts and derivatives are valued costs as cost of sales or selling, general, and administra- at market with all net changes in value recorded in earn- tive (SG&A) expenses (previously recorded as a reduction ings currently. of net sales or SG&A expenses). Th e impact of these Inventories outside of the United States are valued changes was an increase to net sales of $22.0 million at the lower of cost, using the fi rst-in, fi rst-out (FIFO) in fi scal 2009; an increase to cost of sales of $73.4 mil- method, or market. lion in fi scal 2010 and $80.6 million in fi scal 2009; and Shipping costs associated with the distribution of fi n- a decrease to SG&A expenses of $73.4 million in fi scal ished product to our customers are recorded as cost of 2010 and $58.6 million in fi scal 2009. sales, and are recognized when the related fi nished prod- • Shift ing allocation of certain SG&A expenses, primar- uct is shipped to and accepted by the customer. ily stock-based compensation, between segment operating profi t and unallocated corporate items. Th e impact Land, Buildings, Equipment, and Depreciation Land of this change was a decrease to segment operating is recorded at historical cost. Buildings and equipment, profi t of $20.8 million in fi scal 2010 and $18.9 million in including capitalized interest and internal engineer- fi scal 2009 and a corresponding decrease in unallocated ing costs, are recorded at cost and depreciated over corporate items. estimated useful lives, primarily using the straight-line • Shift ing sales responsibility for a customer from our method. Ordinary maintenance and repairs are charged Bakeries and Foodservice segment to our U.S. Retail seg- to cost of sales. Buildings are usually depreciated over 40 ment. Net sales of $9.8 million in fi scal 2010 and $15.0 to 50 years, and equipment, furniture, and soft ware are million in fi scal 2009 and segment operating profi t of usually depreciated over 3 to 10 years. Fully depreciated $4.1 million in fi scal 2010 and $6.4 million in fi scal 2009 assets are retained in buildings and equipment until dis- previously recorded in our Bakeries and Foodservice seg- posal. When an item is sold or retired, the accounts are ment have now been reported in the U.S. Retail segment. relieved of its cost and related accumulated depreciation In addition, certain other reclassifi cations to our previ- and the resulting gains and losses, if any, are recognized ously reported fi nancial information have been made to in earnings. As of May 29, 2011, assets held for sale were conform to the current period presentation. insignifi cant. Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset (or asset group) may

Annual Report 2011 49 not be recoverable. An impairment loss would be recog- expenditures, and the expected lives of other related nized when estimated undiscounted future cash fl ows groups of assets. from the operation and disposition of the asset group Our indefi nite-lived intangible assets, mainly intangible are less than the carrying amount of the asset group. assets primarily associated with the Pillsbury, Totino’s, Asset groups have identifi able cash fl ows and are largely Progresso, Green Giant, Old El Paso, and Häagen- independent of other asset groups. Measurement of an Dazs brands, are also tested for impairment annually impairment loss would be based on the excess of the and whenever events or changes in circumstances indi- carrying amount of the asset group over its fair value. cate that their carrying value may not be recoverable. Fair value is measured using a discounted cash fl ow We performed our fi scal 2011 assessment of our brand model or independent appraisals, as appropriate. intangibles as of November 29, 2010. Our estimate of the fair value of the brands was based on a discounted Goodwill and Other Intangible Assets Goodwill is not cash fl ow model using inputs which included: projected subject to amortization and is tested for impairment revenues from our annual long-range plan; assumed roy- annually and whenever events or changes in circum- alty rates that could be payable if we did not own the stances indicate that impairment may have occurred. brands; and a discount rate. As of our assessment date, Impairment testing is performed for each of our report- there was no impairment of any of our indefi nite-lived ing units. We compare the carrying value of a reporting intangible assets as their related fair values were sub- unit, including goodwill, to the fair value of the unit. stantially in excess of the carrying values. Carrying value is based on the assets and liabilities associated with the operations of that reporting unit, which Investments in Joint Ventures Our investments in oft en requires allocation of shared or corporate items companies over which we have the ability to exercise among reporting units. If the carrying amount of a signifi cant infl uence are stated at cost plus our share reporting unit exceeds its fair value, we revalue all assets of undistributed earnings or losses. We receive roy- and liabilities of the reporting unit, excluding goodwill, alty income from certain joint ventures, incur various to determine if the fair value of the net assets is greater expenses (primarily research and development), and than the net assets including goodwill. If the fair value record the tax impact of certain joint venture opera- of the net assets is less than the carrying amount of tions that are structured as partnerships. In addition, we net assets including goodwill, impairment has occurred. make advances to our joint ventures in the form of loans Our estimates of fair value are determined based on a or capital investments. We also sell certain raw materi- discounted cash fl ow model. Growth rates for sales and als, semi-fi nished goods, and fi nished goods to the joint profi ts are determined using inputs from our annual ventures, generally at market prices. long-range planning process. We also make estimates of In addition, we assess our investments in our joint discount rates, perpetuity growth assumptions, market ventures if we have reason to believe an impairment comparables, and other factors. We performed our fi scal may have occurred including, but not limited to, ongo- 2011 assessment as of November 29, 2010, and deter- ing operating losses, projected decreases in earnings, mined there was no impairment of goodwill for any of increases in the weighted average cost of capital or sig- our reporting units as their related fair values were sub- nifi cant business disruptions. Th e signifi cant assump- stantially in excess of their carrying values. tions used to estimate fair value include revenue growth We evaluate the useful lives of our other intangible and profi tability, royalty rates, capital spending, depre- assets, mainly brands, to determine if they are fi nite or ciation and taxes, foreign currency exchange rates and indefi nite-lived. Reaching a determination on useful life a discount rate. By their nature, these projections and requires signifi cant judgments and assumptions regard- assumptions are uncertain. If we were to determine ing the future eff ects of obsolescence, demand, com- the current fair value of our investment was less than petition, other economic factors (such as the stability the carrying value of the investment, then we would of the industry, known technological advances, legis- assess if the shortfall was of a temporary or permanent lative action that results in an uncertain or changing nature and write down the investment to its fair value if regulatory environment, and expected changes in dis- we concluded the impairment is other than temporary. tribution channels), the level of required maintenance Aft er the earthquakes and tsunami in Japan in March 2011, we assessed the fair value of our investment in

50 General Mills Häagen-Dazs Japan and determined that it exceeded the are written oﬀ against the allowance when we deem the carrying value by approximately 5 percent. amount is uncollectible.

Variable Interest Entities As of May 29, 2011, we had Environmental Environmental costs relating to exist- invested in six variable interest entities (VIEs). We deter- ing conditions caused by past operations that do not mined whether or not we were the primary benefi ciary contribute to current or future revenues are expensed. (PB) of each VIE using a qualitative assessment that con- Liabilities for anticipated remediation costs are recorded sidered the VIE’s purpose and design, the involvement of on an undiscounted basis when they are probable and each of the interest holders, and the risks and benefi ts reasonably estimable, generally no later than the comple- of the VIE. We have an interest in a contract manufac- tion of feasibility studies or our commitment to a plan of turer at our former facility in Geneva, Illinois. We are the action. PB and have consolidated this entity. Th is entity had property and equipment with a carrying value of $13.6 Advertising Production Costs We expense the produc- million and long-term debt of $15.0 million as of May tion costs of advertising the fi rst time that the advertis- 29, 2011. Th e liabilities recognized as a result of con- ing takes place. solidating this entity do not represent additional claims on our general assets. Th e remaining vefi VIEs, two of Research and Development All expenditures for which we are not the PB, are not material to our results research and development (R&D) are charged against of operations, fi nancial condition, or liquidity as of and earnings in the year incurred. R&D includes expenditures for the year ended May 29, 2011. We provided minimal for new product and manufacturing process innovation, fi nancial or other support to VIEs during fi scal 2011 and and the annual expenditures are comprised primarily of there are no arrangements related to VIEs that would internal salaries, wages, consulting, and other supplies require us to provide signifi cant fi nancial support in the attributable to time spent on R&D activities. Other costs future. include depreciation and maintenance of research facilities, including assets at facilities that are engaged in pilot Revenue Recognition We recognize sales revenue when plant activities. the shipment is accepted by our customer. Sales include shipping and handling charges billed to the customer Foreign Currency Translation For all signifi cant foreign and are reported net of consumer coupon redemp- operations, the functional currency is the local currency. tion, trade promotion and other costs, including esti- Assets and liabilities of these operations are translated mated allowances for returns, unsalable product, and at the period-end exchange rates. Income statement prompt pay discounts. Sales, use, value-added, and other accounts are translated using the average exchange rates excise taxes are not recognized in revenue. Coupons are prevailing during the year. Translation adjustments are recorded when distributed, based on estimated redemp- refl ected within accumulated other comprehensive loss tion rates. Trade promotions are recorded based on esti- (AOCI) in stockholders’ equity. Gains and losses from for- mated participation and performance levels for off ered eign currency transactions are included in net earnings programs at the time of sale. We generally do not for the period, except for gains and losses on investments allow a right of return. However, on a limited case-by- in subsidiaries for which settlement is not planned for case basis with prior approval, we may allow custom- the foreseeable future and foreign exchange gains and ers to return product. In limited circumstances, product losses on instruments designated as net investment returned in saleable condition is resold to other custom- hedges. Th ese gains and losses are recorded in AOCI. ers or outlets. Receivables from customers generally do not bear interest. Terms and collection patterns vary Derivative Instruments All derivatives are recognized around the world and by channel. Th e allowance for on the Consolidated Balance Sheets at fair value based doubtful accounts represents our estimate of probable on quoted market prices or our estimate of their fair non-payments and credit losses in our existing receiv- value, and are recorded in either current or noncurrent ables, as determined based on a review of past due bal- assets or liabilities based on their maturity. Changes in ances and other specifi c account data. Account balances the fair values of derivatives are recorded in net earnings or other comprehensive income, based on whether the

Annual Report 2011 51 instrument is designated and eff ective as a hedge trans- when incurred. Our postemployment benefi t plans are action and, if so, the type of hedge transaction. Gains or unfunded. losses on derivative instruments reported in AOCI are We recognize the underfunded or overfunded status reclassifi ed to earnings in the period the hedged item of a defi ned benefi t postretirement plan as an asset or aff ects earnings. If the underlying hedged transaction liability and recognize changes in the funded status in ceases to exist, any associated amounts reported in AOCI the year in which the changes occur through AOCI. are reclassifi ed to earnings at that time. Any ineff ectiveness is recognized in earnings in the current period. Use of Estimates Preparing our Consolidated Financial Statements in conformity with accounting principles Stock-based Compensation We generally measure com- generally accepted in the United States requires us to pensation expense for grants of restricted stock units make estimates and assumptions that aff ect reported using the value of a share of our stock on the date of amounts of assets and liabilities, disclosures of contin- grant. We estimate the value of stock option grants gent assets and liabilities at the date of the fi nancial using the Black-Scholes valuation model. Stock com- statements, and the reported amounts of revenues and pensation is recognized straight line over the vesting expenses during the reporting period. Th ese estimates period. Our stock compensation expense is recorded in include our accounting for promotional expenditures, SG&A and cost of sales in the Consolidated Statements valuation of long-lived assets, intangible assets, stock- of Earnings and allocated to each reportable segment in based compensation, income taxes, and defi ned benefi t our segment results. pension, post-retirement and post-employment benefi ts. Certain equity-based compensation plans contain pro- Actual results could diff er from our estimates. visions that accelerate vesting of awards upon retirement, disability, or death of eligible employees and Other New Accounting Standards In fi scal 2011, we directors. We consider a stock-based award to be vested adopted new accounting guidance on the consolida- when the employee’s retention of the award is no longer tion model for VIE’s. Th e guidance requires companies contingent on providing subsequent service. Accordingly, to qualitatively assess the determination of the primary the related compensation cost is recognized immediately benefi ciary of a VIE based on whether the company (1) for awards granted to retirement-eligible individuals or has the power to direct matters that most signifi cantly over the period from the grant date to the date retire- impact the VIE’s economic performance, and (2) has ment eligibility is achieved, if less than the stated vest- the obligation to absorb losses or the right to receive ing period. benefi ts of the VIE that could potentially be signifi - We report the benefi ts of tax deductions in excess of cant to the VIE. Th e adoption of the guidance did not recognized compensation cost as a fi nancing cash fl ow, have an impact on our results of operations or fi nancial thereby reducing net operating cash fl ows and increas- condition. ing net fi nancing cash fl ows. In fi scal 2010, we adopted new accounting guidance on employer’s disclosures for post-retirement benefi t Defi ned Benefi t Pension, Other Postretirement, and plan assets. Th e guidance requires an employer to dis- Postemployment Benefit Plans We sponsor several close information on the investment policies and strate- domestic and foreign defi ned benefi t plans to provide gies and the signifi cant concentrations of risk in plan pension, health care, and other welfare benefi ts to retired assets. An employer must also disclose the fair value of employees. Under certain circumstances, we also provide each major category of plan assets as of each annual accruable benefi ts to former or inactive employees in the reporting date together with the information on the United States and Canada and members of our Board of inputs and valuation techniques used to develop such Directors, including severance and certain other benefi ts fair value measurements. Th e adoption of the guidance payable upon death. We recognize an obligation for any did not have an impact on our results of operations or of these benefi ts that vest or accumulate with service. fi nancial condition. See Note 13. Postemployment benefi ts that do not vest or accumulate In fi scal 2010, we adopted new accounting guidance with service (such as severance based solely on annual on accounting for equity method investments. Th e guid- pay rather than years of service) are charged to expense ance addresses the impact of the issuance of the noncontrolling interests and business combination guidance

52 General Mills on accounting for equity method investments. Th e adop- the world. Yoplait Marques S.A.S. holds the worldwide tion of the guidance did not have a material impact on rights to Yoplait and related trademarks. We fi nalized our results of operations or fi nancial condition. this transaction on July 1, 2011. Th e pro forma eff ects of In fi scal 2010, we adopted new accounting guidance this acquisition were not material. issued to assist in determining whether instruments Th ere were no acquisitions or divestitures in fi scal granted in share-based payment transactions are partic- 2010. ipating securities. Th e guidance provides that unvested In fi scal 2009, we sold our bread concentrates prod- share-based payment awards that contain non-forfeit- uct line within our Bakeries and Foodservice segment, able rights to dividends or dividend equivalents (whether including a plant in Cedar Rapids, Iowa, for $8.3 million paid or unpaid) are participating securities and shall be in cash. We recorded a pre-tax loss of $5.6 million on included in the computation of EPS pursuant to the the transaction. We also sold a portion of the assets of two-class method. Th e adoption of the guidance did not the frozen unbaked bread dough product line within our have a material impact on our basic or diluted EPS. Bakeries and Foodservice segment, including plants in In fi scal 2010, we adopted new accounting guidance Bakersfi eld, California; Hazleton, Pennsylvania; Montreal, on convertible debt instruments. Th e guidance requires Canada; and Vinita, Oklahoma, for $43.9 million in cash, issuers to account separately for the liability and equity an $11.9 million note receivable, and contingent future components of convertible debt instruments that may payments based on the post-sale performance of the be settled in cash or other assets. Th e adoption of the product line. Certain assets sold were shared with a fro- guidance did not have a material impact on our results zen dinner roll product line within our U.S. Retail seg- of operations or fi nancial condition. ment, and we exited this product line as a result of the asset sale. We recorded a pre-tax loss of $38.3 million. NOTE 3. ACQUISITIONS AND DIVESTITURES In fi scal 2010, we recorded cash proceeds of $3.2 million related to the repayment of the note. In fi scal 2009, During the third quarter of fi scal 2011, we acquired the we sold our Pop•Secret microwave popcorn product line Mountain High yoghurt business for $84.8 million. We from our U.S. Retail segment for $192.5 million in cash, recorded the purchase price less the fair value of tan- and we recorded a pre-tax gain of $128.8 million. We gible and intangible net assets acquired as goodwill received cash proceeds of $158.9 million aft er repayment of $44.6 million. During the fourth quarter of fi scal of a lease obligation and transaction costs. In fi scal 2009, 2011, we acquired the Pasta Master meals business in we also acquired Humm Foods, Inc. (Humm Foods), the Australia for $38.5 million. We recorded the purchase maker of Lärabar fruit and nut energy bars. We issued price less the fair value of tangible and intangible net 1.8 million shares of our common stock with a value of assets acquired as goodwill of $26.9 million. Th e pro $55.0 million to the shareholders of Humm Foods as con- forma eff ects of these acquisitions were not material. sideration for the acquisition. We recorded the purchase During the third quarter of fi scal 2011, we sold a price less tangible and intangible net assets acquired as foodservice frozen baked goods product line in our goodwill of $41.6 million. Th e pro forma eff ect of this International segment for $24.9 million in cash and acquisition was not material. recorded a pre-tax gain of $14.3 million. In addition, during the fourth quarter of fi scal 2011, we sold a pie shell NOTE 4. RESTRUCTURING, IMPAIRMENT, AND OTHER product line in our Bakeries and Foodservice segment EXIT COSTS for cash proceeds of $9.5 million and recorded a pre-tax gain of $3.1 million. We view our restructuring activities as a way to meet During the fourth quarter of fi scal 2011, we entered our long-term growth targets. Activities we undertake into defi nitive agreements with PAI Partners and Sodiaal must meet internal rate of return and net present value International to purchase a 51 percent controlling targets. Each restructuring action normally takes one to interest in Yoplait S.A.S. and a 50 percent interest in two years to complete. At completion (or as each major Yoplait Marques S.A.S. for an aggregate purchase price stage is completed in the case of multi-year programs), of $1.2 billion. Yoplait S.A.S. operates yogurt businesses the project begins to deliver cash savings and/or reduced in several countries, including France and the United depreciation. Th ese activities result in various restruc- Kingdom, and oversees franchise relationships around turing costs, including asset write-offs, exit charges

Annual Report 2011 53 including severance, contract termination fees, and In fi scal 2010, we decided to exit our kids’ refriger- decommissioning and other costs. Depreciation associated yogurt beverage product line at our Murfreesboro, ated with restructured assets, as used in the context of Tennessee plant and our microwave soup product line our disclosures regarding restructuring activity, refers to at our Vineland, New Jersey plant to rationalize capac- the increase in depreciation expense caused by shorten- ity for more profitable items. Our decisions to exit ing the useful life or updating the salvage value of depre- these U.S. Retail segment products resulted in a $24.1 ciable fi xed assets to coincide with the end of production million non-cash charge against the related long-lived under an approved restructuring plan. Any impairment assets. No employees were aff ected by these actions. of the asset is recognized immediately in the period the We also decided to exit our breadcrumbs product line plan is approved. at our Federalsburg, Maryland facility in our Bakeries In fi scal 2011, we recorded restructuring, impairment, and Foodservice segment. As a result of this decision, and other exit costs pursuant to approved plans as we concluded that the future cash fl ows generated by follows: these products were insuffi cient to recover the net book value of the associated long-lived assets. Accordingly, Expense, in Millions we recorded a non-cash charge of $6.2 million primarily

Discontinuation of underperforming related to the impairment of these long-lived assets and product line in our U.S. Retail segment $1.7 in the fourth quarter of fi scal 2010, we sold our bread- Charges associated with restructuring crumbs manufacturing facility in Federalsburg for $2.9 actions previously announced 2.7 million. In fi scal 2010, we also recorded a $0.6 million Total $4.4 net gain on the sale of our previously closed Contagem, Brazil bread and pasta plant for cash proceeds of $5.9 million, and recorded $1.7 million of costs related to pre- In fi scal 2011, we decided to exit an underperform- viously announced restructuring actions. In fi scal 2010, ing product line in our U.S. Retail segment. As a result we paid $8.0 million in cash related to restructuring of this decision, we concluded that the future cash actions taken in fi scal 2010 and previous years. fl ows generated by this product line were insuffi cient In fiscal 2009, we recorded restructuring, impair- to recover the net book value of the associated long- ment, and other exit costs pursuant to approved plans lived assets. Accordingly, we recorded a non-cash charge as follows: of $1.7 million related to the impairment of the associated long-lived assets. No employees were aff ected by Expense, in Millions these actions. In addition, we recorded $2.7 million of Closure of Contagem, Brazil bread and pasta plant $16.8 charges associated with restructuring actions previously Discontinuation of product line at announced. In fi scal 2011, we paid $5.9 million in cash Murfreesboro, Tennessee plant 8.3 related to restructuring actions taken in fi scal 2011 and Charges associated with restructuring previous years. actions previously announced 16.5 In fi scal 2010, we recorded restructuring, impairment, Total $41.6 and other exit costs pursuant to approved plans as follows:

Expense (Income), in Millions

Discontinuation of kids’ refrigerated yogurt beverage and microwave soup product lines $24.1 Discontinuation of the breadcrumbs product line at Federalsburg, Maryland plant 6.2 Sale of Contagem, Brazil bread and pasta plant (0.6) Charges associated with restructuring actions previously announced 1.7 Total $31.4

54 General Mills Th e roll forward of our restructuring and other exit Results from our CPW and HDJ joint ventures are cost reserves, included in other current liabilities, is as reported for the 12 months ended March 31. follows: Joint venture balance sheet activity follows:

Other May 29, May 30, Contract Exit In Millions 2011 2010 In Millions Severance Termination Costs Total Cumulative investments $519.1 $398.1 Reserve balance as of Goodwill and other intangibles 597.1 512.6 May 25, 2008 $ 7.6 $ — $ 0.3 $ 7.9 Aggregate advances 293.3 238.2 2009 charges, including foreign currency translation 5.5 10.3 — 15.8 Utilized in 2009 (4.7) — (0.2) (4.9) Joint venture earnings and cash ﬂ ow activity follows: Reserve balance as of May 31, 2009 8.4 10.3 0.1 18.8 Fiscal Year 2010 charges, including In Millions 2011 2010 2009 foreign currency translation 0.2 0.8 — 1.0 Sales to joint ventures $10.2 $ 10.7 $14.2 Utilized in 2010 (6.0) (3.0) — (9.0) Net advances (repayments) 1.8 128.1 (8.2) Reserve balance as of Dividends received 72.7 88.0 68.5 May 30, 2010 2.6 8.1 0.1 10.8 2011 charges, including foreign currency translation — — — — Summary combined ﬁ nancial information for the joint Utilized in 2011 (0.9) (2.6) (0.1) (3.6) ventures on a 100 percent basis follows: Reserve balance as of Fiscal Year May 29, 2011 $ 1.7 $ 5.5 $ — $ 7.2 In Millions 2011 2010 2009

Net sales $2,444.9 $2,360.0 $2,280.0 Th e charges recognized in the roll forward of our Gross margin 1,066.3 1,053.2 873.5 reserves for restructuring and other exit costs do not Earnings before income taxes 233.4 251.2 234.7 include items charged directly to expense (e.g., asset Earnings aft er income taxes 164.2 202.3 175.3 impairment charges, the gain or loss on the sale of May 29, May 30, restructured assets, and the write-oﬀ of spare parts) and In Millions 2011 2010 other periodic exit costs recognized as incurred, as those Current assets $ 904.7 $ 731.7 items are not reﬂ ected in our restructuring and other Noncurrent assets 1,138.0 907.3 exit cost reserves on our Consolidated Balance Sheets. Current liabilities 1,690.1 1,322.0 Noncurrent liabilities 103.3 112.1 NOTE 5. INVESTMENTS IN JOINT VENTURES

We have a 50 percent equity interest in Cereal Partners Worldwide (CPW), which manufactures and markets ready-to-eat cereal products in more than 130 countries and republics outside the United States and Canada. CPW also markets cereal bars in several European countries and manufactures private label cereals for customers in the United Kingdom. We have guaranteed a portion of CPW’s debt and its pension obligation in the United Kingdom. We also have a 50 percent equity interest in Häagen- Dazs Japan, Inc. (HDJ). Th is joint venture manufactures, distributes, and markets Häagen-Dazs ice cream products and frozen novelties.

Annual Report 2011 55 NOTE 6. GOODWILL AND OTHER Th e changes in the carrying amount of goodwill for INTANGIBLE ASSETS ﬁ scal 2009, 2010, and 2011 are as follows:

Bakeries Th e components of goodwill and other intangible assets U.S. and Joint In Millions Retail International Foodservice Ventures Total are as follows: May 29, May 30, Balance as of In Millions 2011 2010 May 25, 2008 $5,107.0 $146.4 $955.7 $577.0 $6,786.1 Goodwill $6,750.8 $6,592.8 Acquisition 41.6 — — — 41.6 Other intangible assets: Divestitures (17.8) (0.1) (23.7) — (41.6) Intangible assets not subject Deferred tax to amortization: adjustment related Brands 3,771.7 3,679.6 to divestitures (46.5) (4.5) (12.8) — (63.8) Intangible assets subject to amortization: Deferred tax Patents, trademarks, and adjustment resulting other ﬁ nite-lived intangibles 69.2 54.4 from change in Less accumulated amortization (27.6) (19.0) acquisition-related Intangible assets subject to amortization 41.6 35.4 income tax liabilities 14.0 1.3 3.8 — 19.1 Other intangible assets 3,813.3 3,715.0 Other activity, Total $10,564.1 $10,307.8 primarily foreign currency translation — (19.8) — (58.6) (78.4) Balance as of May 31, 2009 5,098.3 123.3 923.0 518.4 6,663.0 Other activity, primarily foreign currency translation — (1.3) — (68.9) (70.2) Balance as of May 30, 2010 5,098.3 122.0 923.0 449.5 6,592.8 Acquisitions 44.6 26.9 — — 71.5 Divestitures — (0.5) (1.9) — (2.4) Other activity, primarily foreign currency translation — 14.2 — 74.7 88.9 Balance as of May 29, 2011 $5,142.9 $162.6 $921.1 $524.2 $6,750.8

56 General Mills Th e changes in the carrying amount of other intan- NOTE 7. FINANCIAL INSTRUMENTS, RISK gible assets for ﬁ scal 2009, 2010, and 2011 are as follows: MANAGEMENT ACTIVITIES, AND FAIR VALUES

U.S. Joint In Millions Retail International Ventures Total Financial Instruments Balance as of Th e carrying values of cash and cash equivalents, receiv- May 25, 2008 $3,175.2 $518.8 $83.2 $3,777.2 ables, accounts payable, other current liabilities, and Acquisition 19.4 — — 19.4 notes payable approximate fair value. Marketable secu- Other activity, rities are carried at fair value. As of May 29, 2011, and primarily foreign May 30, 2010, a comparison of cost and market values of currency translation 14.3 (56.2) (7.7) (49.6) our marketable debt and equity securities is as follows:

Balance as of Market Gross Gross May 31, 2009 3,208.9 462.6 75.5 3,747.0 Cost Value Gains Losses Other activity, Fiscal Year Fiscal Year Fiscal Year Fiscal Year primarily foreign In Millions 2011 2010 2011 2010 2011 2010 2011 2010 currency translation (2.3) (17.3) (12.4) (32.0) Available for sale: Balance as of Debt securities $ 8.9 $11.8 $ 9.0 $11.9 $0.1 $0.1 $— $— May 30, 2010 3,206.6 445.3 63.1 3,715.0 Equity securities 2.0 6.1 6.0 15.5 4.0 9.4 — — Acquisitions 39.3 6.0 — 45.3 Total $10.9 $17.9 $15.0 $27.4 $4.1 $9.5 $— $— Other activity, primarily foreign Earnings include $10.5 million of realized gains from currency translation (3.4) 46.6 9.8 53.0 sales of available-for-sale marketable securities. Gains Balance as of and losses are determined by specific identification. May 29, 2011 $ 3,242.5 $497.9 $72.9 $3,813.3 Classifi cation of marketable securities as current or noncurrent is dependent upon our intended holding period, the security’s maturity date, or both. Th e aggregate unrealized gains and losses on available-for-sale securities, net of tax eff ects, are classifi ed in AOCI within stockholders’ equity. Scheduled maturities of our marketable securities are as follows:

Available for Sale Market In Millions Cost Value

Under 1 year (current) $ 2.7 $ 2.7 From 1 to 3 years 0.7 0.7 From 4 to 7 years 5.2 5.3 Over 7 years 0.3 0.3 Equity securities 2.0 6.0 Total $10.9 $15.0

Marketable securities with a market value of $2.3 million as of May 29, 2011, were pledged as collateral for certain derivative contracts. Th e fair value and carrying amount of long-term debt, including the current portion, were $7,164.5 million and $6,573.8 million as of May 29, 2011. Th e fair value of long-term debt was estimated using market quotations and discounted cash ﬂ ows based on our current incremental borrowing rates for similar types of instruments.

Annual Report 2011 57 Risk Management Activities Unallocated corporate items for fi scal 2011 and fi scal As a part of our ongoing operations, we are exposed 2010 included: to market risks such as changes in interest rates, for- Fiscal Year eign currency exchange rates, and commodity prices. To In Millions 2011 2010 2009 manage these risks, we may enter into various deriva- Net gain (loss) on mark-to-market tive transactions (e.g., futures, options, and swaps) pur- valuation of commodity positions $160.3 $(54.7) $(249.6) suant to our established policies. Net loss (gain) on commodity positions reclassifi ed from Commodity Price Risk unallocated corporate items Many commodities we use in the production and dis- to segment operating profi t (93.6) 55.7 134.8 tribution of our products are exposed to market price Net mark-to-market revaluation risks. We utilize derivatives to manage price risk for our of certain grain inventories 28.5 (8.1) (4.1) principal ingredients and energy costs, including grains Net mark-to-market valuation of (oats, wheat, and corn), oils (principally soybean), non- certain commodity positions fat dry milk, natural gas, and diesel fuel. Our primary recognized in unallocated objective when entering into these derivative contracts corporate items $ 95.2 $ (7.1) $(118.9) is to achieve certainty with regard to the future price of commodities purchased for use in our supply chain. As of May 29, 2011, the net notional value of com- We manage our exposures through a combination of modity derivatives was $347.5 million, of which $160.7 purchase orders, long-term contracts with suppliers, million related to agricultural inputs and $186.8 million exchange-traded futures and options, and over-the- related to energy inputs. Th ese contracts relate to inputs counter options and swaps. We off set our exposures that generally will be utilized within the next 12 months. based on current and projected market conditions and generally seek to acquire the inputs at as close to our Interest Rate Risk planned cost as possible. We are exposed to interest rate volatility with regard We use derivatives to manage our exposure to changes to future issuances of fi xed-rate debt, and existing and in commodity prices. We do not perform the assess- future issuances of fl oating-rate debt. Primary expo- ments required to achieve hedge accounting for com- sures include U.S. Treasury rates, LIBOR, and commer- modity derivative positions. Accordingly, the changes in cial paper rates in the United States and Europe. We use the values of these derivatives are recorded currently in interest rate swaps and forward-starting interest rate cost of sales in our Consolidated Statements of Earnings. swaps to hedge our exposure to interest rate changes, Although we do not meet the criteria for cash fl ow to reduce the volatility of our fi nancing costs, and to hedge accounting, we nonetheless believe that these achieve a desired proportion of fi xed versus fl oating-rate instruments are eff ective in achieving our objective of debt, based on current and projected market conditions. providing certainty in the future price of commodities Generally under these swaps, we agree with a counter- purchased for use in our supply chain. Accordingly, for party to exchange the diff erence between fi xed-rate and purposes of measuring segment operating performance fl oating-rate interest amounts based on an agreed upon these gains and losses are reported in unallocated cor- notional principal amount. porate items outside of segment operating results until Floating Interest Rate Exposures —Floating-to-fi xed such time that the exposure we are managing aff ects interest rate swaps are accounted for as cash flow earnings. At that time we reclassify the gain or loss hedges, as are all hedges of forecasted issuances of debt. from unallocated corporate items to segment operating Eff ectiveness is assessed based on either the perfectly profi t, allowing our operating segments to realize the eff ective hypothetical derivative method or changes in economic eff ects of the derivative without experiencing the present value of interest payments on the underly- any resulting mark-to-market volatility, which remains ing debt. Eff ective gains and losses deferred to AOCI are in unallocated corporate items. reclassifi ed into earnings over the life of the associated debt. Ineff ective gains and losses are recorded as net interest. Th e amount of hedge ineff ectiveness was less than $1 million in each of fi scal 2011, 2010 and 2009.

58 General Mills Fixed Interest Rate Exposures — Fixed-to-fl oating Th e following table summarizes the notional amounts interest rate swaps are accounted for as fair value and weighted-average interest rates of our interest rate hedges with eff ectiveness assessed based on changes in swaps. Average fl oating rates are based on rates as of the fair value of the underlying debt and derivatives, the end of the reporting period. using incremental borrowing rates currently available May 29, May 30, on loans with similar terms and maturities. Ineff ective In Millions 2011 2010 gains and losses on these derivatives and the underlying Pay-fl oating swaps - notional amount $ 838.0 $ 2,155.6 hedged items are recorded as net interest. Th e amount Average receive rate 1.8% 4.8% of hedge ineff ectiveness was less than $1 million in each Average pay rate 0.2% 0.3% of fi scal 2011, 2010 and 2009. Pay-fi xed swaps - notional amount — $ 1,600.0 During the fourth quarter of fi scal 2011, we entered Average receive rate — 0.3% into swaps to convert $300.0 million of 1.55 percent Average pay rate — 7.3% fi xed-rate notes due May 16, 2014, to fl oating rates. Pay-fi xed forward starting swaps - We also entered into $500.0 million of forward start- notional amount $ 500.0 $ — ing swaps with an average fi xed rate of 3.9 percent in advance of a planned debt fi nancing. Th e swap contracts mature at various dates from fi s- During the fourth quarter of fi scal 2010, in advance of cal 2012 to 2014 as follows: a planned debt fi nancing, we entered into $500.0 mil- Fiscal Year lion of treasury lock derivatives with an average fi xed Maturity Date rate of 4.3 percent. All of these treasury locks were cash In Millions Pay Floating Pay Fixed settled for $17.1 million during the fi rst quarter of fi scal 2012 $ 3.4 $500.0 2011, coincident with the issuance of our $500.0 million 2013 534.6 — 30-year fi xed-rate notes. As of May 29, 2011, a $16.2 mil- 2014 300.0 — lion pre-tax loss remained in AOCI, which will be reclas- Total $838.0 $500.0 sifi ed to earnings over the term of the underlying debt. During the second quarter of fi scal 2010 we entered Foreign Exchange Risk into $700.0 million of interest rate swaps to convert Foreign currency fl uctuations aff ect our net investments $700.0 million of 5.65 percent fi xed-rate notes to fl oat- in foreign subsidiaries and foreign currency cash fl ows ing rates. In May 2010, we repurchased $179.2 million of related to foreign-denominated commercial paper, third our 5.65 percent notes, and as a result, we received $2.7 party purchases, intercompany loans, and product ship- million to settle a portion of these swaps that related to ments. We are also exposed to the translation of foreign the repurchased debt. currency earnings to the U.S. dollar. Our principal expo- In anticipation of our acquisition of Th e Pillsbury sures are to the Australian dollar, British pound sterling, Company (Pillsbury) and other financing needs, we Canadian dollar, Chinese renminbi, euro, Japanese yen, entered into pay-fi xed interest rate swap contracts dur- Swiss franc, and Mexican peso. We mainly use foreign ing fi scal 2001 and 2002 totaling $7.1 billion to lock currency forward contracts to selectively hedge our for- in our interest payments on the associated debt. Th e eign currency cash fl ow exposures. We also generally remaining $1.6 billion of these pay-fi xed swap contracts swap our foreign-denominated commercial paper bor- along with $1.6 billion of off setting pay-fl oating swaps rowings and nonfunctional currency intercompany loans were cash settled for $22.3 million during the third back to U.S. dollars or the functional currency; the gains quarter of fi scal 2011. As of May 29, 2011, a $0.5 million or losses on these derivatives off set the foreign currency pre-tax loss remained in AOCI, which will be reclassifi ed revaluation gains or losses recorded in earnings on the to earnings over the remaining term of the underlying associated borrowings. We generally do not hedge more debt. than 18 months forward. As of May 29, 2011, a $12.7 million pre-tax loss on As of May 29, 2011, the notional value of foreign cash settled interest rate swaps for our $1.0 billion exchange derivatives was $2,436.5 million. Th e amount 10-year note issued January 24, 2007, remained in AOCI, of hedge ineff ectiveness was less than $1 million in each which will be reclassifi ed to earnings over the term of of fi scal 2011, 2010 and 2009. the underlying debt.

Annual Report 2011 59 As discussed in Note 3, during the fourth quarter of Fair Value Measurements And fi scal 2011 we entered into defi nitive agreements with Financial Statement Presentation PAI Partners and Sodiaal International to purchase inter- We categorize assets and liabilities into one of three lev- ests in Yoplait entities for $1.2 billion. To reduce the risk els based on the assumptions (inputs) used in valuing of the U.S. dollar cost of the euro-denominated acquisi- the asset or liability. Level 1 provides the most reliable tion, we purchased call options covering €637 million at measure of fair value, while Level 3 generally requires a cost of $12.7 million. As of May 29, 2011, we recorded a signifi cant management judgment. Th e three levels are $2.2 million unrealized gain on these derivatives. defi ned as follows: We also have many net investments in foreign sub- Level 1: Unadjusted quoted prices in active mar- sidiaries that are denominated in euros. We hedged a kets for identical assets or liabilities. portion of these net investments by issuing euro-denom- Level 2: Observable inputs other than quoted inated commercial paper and foreign exchange forward prices included in Level 1, such as quoted contracts. As of May 29, 2011, we had deferred net for- prices for similar assets or liabilities eign currency transaction losses of $95.7 million in AOCI in active markets or quoted prices for associated with hedging activity. identical assets or liabilities in inactive markets. Level 3: Unobservable inputs refl ecting management’s assumptions about the inputs used in pricing the asset or liability.

Th e fair values of our assets, liabilities, and derivative positions recorded at fair value as of May 29, 2011, and May 30, 2010, were as follows:

May, 29, 2011 May 29, 2011 Fair Values of Assets Fair Values of Liabilities In Millions Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Total

Derivatives designated as hedging instruments: Interest rate contracts (a) (b) $ — $ 11.2 $ — $ 11.2 $ — $(21.3) $ — $(21.3) Foreign exchange contracts (c) (d) — 10.1 — 10.1 — (14.9) — (14.9) Total — 21.3 — 21.3 — (36.2) — (36.2) Derivatives not designated as hedging instruments: Interest rate contracts (a) (b) — 2.2 — 2.2 — (0.9) — (0.9) Foreign exchange contracts (c) (d) — 57.1 — 57.1 — (19.9) — (19.9) Commodity contracts (c) (e) 14.6 16.3 — 30.9 — — — — Grain contracts (c) (e) — 61.1 — 61.1 — (29.0) — (29.0) Total 14.6 136.7 — 151.3 — (49.8) — (49.8) Other assets and liabilities reported at fair value: Marketable investments (a) (f) 5.9 9.1 — 15.0 — — — — Total 5.9 9.1 — 15.0 — — — — Total assets, liabilities, and derivative positions recorded at fair value $20.5 $167.1 $ — $187.6 $ — $(86.0) $ — $(86.0)

60 General Mills May, 30, 2011 May 30, 2011 Fair Values of Assets Fair Values of Liabilities In Millions Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Total

Derivatives designated as hedging instruments: Interest rate contracts (a) (b) $ — $ 5.8 $ — $ 5.8 $ — $ (17.1) $ — $ (17.1) Foreign exchange contracts (c) (d) — 8.6 — 8.6 — (12.5) — (12.5) Total — 14.4 — 14.4 — (29.6) — (29.6) Derivatives not designated as hedging instruments: Interest rate contracts (a) (b) — 124.3 — 124.3 — (163.1) — (163.1) Foreign exchange contracts (c) (d) — 9.5 — 9.5 — (1.0) — (1.0) Commodity contracts (c) (e) — 7.4 — 7.4 (5.6) — — (5.6) Grain contracts (c) (e) — 11.9 — 11.9 — (13.0) — (13.0) Total — 153.1 — 153.1 (5.6) (177.1) — (182.7) Other assets and liabilities reported at fair value: Marketable investments (a) (f) 15.5 11.9 — 27.4 — — — — Long-lived assets (g) — 0.4 — 0.4 — — — — Total 15.5 12.3 — 27.8 — — — — Total assets, liabilities, and derivative positions recorded at fair value $15.5 $179.8 $ — $195.3 $(5.6) $(206.7) $ — $(212.3)

(a) Th ese contracts and investments are recorded as other assets or as other liabilities, as appropriate, based on whether in a gain or loss position. Certain marketable investments are recorded as cash and cash equivalents. (b) Based on LIBOR and swap rates. (c) Th ese contracts are recorded as prepaid expenses and other current assets or as other current liabilities, as appropriate, based on whether in a gain or loss position. (d) Based on observable market transactions of spot currency rates and forward currency prices. (e) Based on prices of futures exchanges and recently reported transactions in the marketplace. (f) Based on prices of common stock and bond matrix pricing. (g) We recorded a $6.6 million non-cash impairment charge in ﬁ scal 2010 to write down certain long-lived assets to their fair value of $0.4 million. Fair value was based on recently reported transactions for similar assets in the marketplace. Th ese assets had a book value of $7.0 million and were associated with the exit activities described in Note 4.

We did not signiﬁ cantly change our valuation techniques from prior periods.

Annual Report 2011 61 Information related to our cash ﬂ ow hedges, fair value hedges, and other derivatives not designated as hedging instruments for the ﬁ scal years ended May 29, 2011, and May 30, 2010, follows:

Interest Rate Foreign Exchange Equity Commodity Contracts Contracts Contracts Contracts Total Fiscal Year Fiscal Year Fiscal Year Fiscal Year Fiscal Year In Millions 2011 2010 2011 2010 2011 2010 2011 2010 2011 2010

Derivatives in Cash Flow Hedging Relationships: Amount of loss recognized in other comprehensive income (OCI) (a) $(20.9) $(11.7) $(18.9) $(13.3) $ — $ — $ — $ — $(39.8) $(25.0) Amount of loss reclassiﬁ ed from AOCI into earnings (a) (b) (13.1) (18.0) (16.7) (26.4) — — — — (29.8) (44.4) Amount of gain (loss) recognized in earnings (c) (d) (0.4) (0.3) 0.3 (0.5) — — — — (0.1) (0.8) Derivatives in Fair Value Hedging Relationships: Amount of net gain recognized in earnings (e) 0.3 0.2 — — — — — — 0.3 0.2 Derivatives Not Designated as Hedging Instruments: Amount of gain (loss) recognized in earnings (e) 1.0 0.2 23.7 13.3 — 0.2 160.3 (54.7) 185.0 (41.0)

(a) Eff ective portion. (b) Loss reclassifi ed from AOCI into earnings is reported in interest, net for interest rate swaps and in cost of sales and SG&A expenses for foreign exchange contracts. (c) All gain (loss) recognized in earnings is related to the ineff ective portion of the hedging relationship. No amounts were reported as a result of being excluded from the assessment of hedge eff ectiveness. (d) Gain (loss) recognized in earnings is reported in SG&A expenses for foreign exchange contracts. (e) Gain (loss) recognized in earnings is reported in interest, net for interest rate contracts, in cost of sales for commodity contracts, and in SG&A expenses for equity contracts and foreign exchange contracts.

Amounts Recorded In Accumulated Other grade, the counterparties to the derivative instruments Comprehensive Loss could request full collateralization on derivative instru- Unrealized losses from interest rate cash fl ow hedges ments in net liability positions. Th e aggregate fair value recorded in AOCI as of May 29, 2011, totaled $30.0 of all derivative instruments with credit-risk-related million aft er tax. Th ese deferred losses are primarily contingent features that were in a liability position on related to interest rate swaps that we entered into in May 29, 2011, was $6.3 million. We would be required contemplation of future borrowings and other fi nanc- to post this amount of collateral to the counterparties if ing requirements and that are being reclassifi ed into net the contingent features were triggered. interest over the lives of the hedged forecasted transactions. Unrealized losses from foreign currency cash fl ow Concentrations Of Credit And hedges recorded in AOCI as of May 29, 2011, were $5.8 Counterparty Credit Risk million aft er-tax. Th e net amount of pre-tax gains and During fi scal 2011, Wal-Mart Stores, Inc. and its affi liates losses in AOCI as of May 29, 2011, that we expect to be (Wal-Mart) accounted for 23 percent of our consolidated reclassifi ed into net earnings within the next 12 months net sales and 30 percent of our net sales in the U.S. Retail is $11.7 million of expense. segment. No other customer accounted for 10 percent or more of our consolidated net sales. Wal-Mart also rep- Credit-Risk-Related Contingent Features resented 6 percent of our net sales in the International Certain of our derivative instruments contain provisions segment and 7 percent of our net sales in the Bakeries that require us to maintain an investment grade credit and Foodservice segment. As of May 29, 2011, Wal-Mart rating on our debt from each of the major credit rat- accounted for 26 percent of our U.S. Retail receivables, 5 ing agencies. If our debt were to fall below investment percent of our International receivables, and 9 percent of

62 General Mills our Bakeries and Foodservice receivables. Th e fi ve larg- fee-paid committed credit lines, consisting of a $1.8 bil- est customers in our U.S. Retail segment accounted for lion facility expiring in October 2012 and a $1.1 billion 53 percent of its fi scal 2011 net sales, the fi ve largest facility expiring in October 2013. We also have $311.8 mil- customers in our International segment accounted for lion in uncommitted credit lines that support our foreign 24 percent of its fi scal 2011 net sales, and the fi ve larg- operations. As of May 29, 2011, there were no amounts est customers in our Bakeries and Foodservice segment outstanding on the fee-paid committed credit lines and accounted for 45 percent of its fi scal 2011 net sales. $118.8 million was drawn on the uncommitted lines. Th e We enter into interest rate, foreign exchange, and cer- credit facilities contain several covenants, including a tain commodity and equity derivatives, primarily with requirement to maintain a fi xed charge coverage ratio of a diversifi ed group of highly rated counterparties. We at least 2.5. We were in compliance with all credit facility continually monitor our positions and the credit rat- covenants as of May 29, 2011. ings of the counterparties involved and, by policy, limit the amount of credit exposure to any one party. Th ese Long-Term Debt In May 2011, we issued $300.0 million transactions may expose us to potential losses due to aggregate principal amount of 1.55 percent fi xed-rate the risk of nonperformance by these counterparties; notes and $400.0 million aggregate principal amount of however, we have not incurred a material loss. We also fl oating-rate notes, both due May 16, 2014. Th e pro- enter into commodity futures transactions through vari- ceeds of these notes were used to repay a portion of our ous regulated exchanges. outstanding commercial paper. Th e fl oating-rate notes Th e amount of loss due to the credit risk of the coun- bear interest equal to three-month LIBOR plus 35 basis terparties, should the counterparties fail to perform points, subject to quarterly reset. Interest on the fl oating- according to the terms of the contracts, is $63.1 million rate notes is payable quarterly in arrears. Interest on the against which we do not hold collateral. Under the terms fi xed-rate notes is payable semi-annually in arrears. Th e of master swap agreements, some of our transactions fi xed-rate notes may be redeemed at our option at any require collateral or other security to support fi nancial time for a specifi ed make whole amount. Th ese notes instruments subject to threshold levels of exposure and are senior unsecured, unsubordinated obligations that counterparty credit risk. Collateral assets are either cash include a change of control repurchase provision. or U.S. Treasury instruments and are held in a trust In June 2010, we issued $500.0 million aggregate prin- account that we may access if the counterparty defaults. cipal amount of 5.4 percent notes due 2040. Th e proceeds of these notes were used to repay a portion of our NOTE 8. DEBT outstanding commercial paper. Interest on these notes is payable semi-annually in arrears. Th ese notes may be Notes Payable Th e components of notes payable and redeemed at our option at any time for a specifi ed make their respective weighted-average interest rates at the whole amount. Th ese notes are senior unsecured, unsub- end of the periods were as follows: ordinated obligations that include a change of control repurchase provision. May 29, 2011 May 30, 2010 In May 2010, we paid $437.0 million to repurchase in a Weighted- Weighted- cash tender off er $400.0 million of our previously issued average average debt. We repurchased $220.8 million of our 6.0 percent Notes Interest Notes Interest In Millions Payable Rate Payable Rate notes due 2012 and $179.2 million of our 5.65 percent

U.S. commercial paper $192.5 0.2% $ 973.0 0.3% notes due 2012. We issued commercial paper to fund the Financial institutions 118.8 11.5 77.1 10.6 repurchase. Total $311.3 4.5% $1,050.1 1.1% In January 2009, we issued $1.2 billion aggregate principal amount of 5.65 percent notes due 2019. In August To ensure availability of funds, we maintain bank 2008, we issued $700.0 million aggregate principal credit lines suffi cient to cover our outstanding short- amount of 5.25 percent notes due 2013. Th e proceeds term borrowings. Commercial paper is a continuing of these notes were used to repay a portion of our out- source of short-term fi nancing. We issue commercial standing commercial paper. Interest on these notes is paper in the United States and Europe. Our commer- payable semi-annually in arrears. Th ese notes may be cial paper borrowings are supported by $2.9 billion of redeemed at our option at any time for a specifi ed make

Annual Report 2011 63 whole amount. Th ese notes are senior unsecured, unsub- NOTE 9. NONCONTROLLING INTERESTS ordinated obligations that include a change of control repurchase provision. Our principal noncontrolling interest relates to our sub- Certain of our long-term debt agreements contain sidiary General Mills Cereals, LLC (GMC). GMC issued restrictive covenants. As of May 29, 2011, we were in a managing membership interest and limited preferred compliance with all of these covenants. membership interests to certain of our wholly owned As of May 29, 2011, the $48.4 million pre-tax loss subsidiaries. We continue to hold the entire managing recorded in AOCI associated with our previously des- membership interest, and therefore direct the opera- ignated interest rate swaps will be reclassifi ed to net tions of GMC. We currently hold all interests in GMC interest over the remaining lives of the hedged transac- other than Class A Limited Membership Interests (Class tions. Th e amount expected to be reclassifi ed from AOCI A Interests) which are held by an unrelated third-party to net interest in fi scal 2012 is $4.3 million pre-tax. investor. As of May 29, 2011, the carrying value of all A summary of our long-term debt is as follows: outstanding Class A Interests was $242.3 million, classifi ed as noncontrolling interests on our Consolidated In Millions May 29, 2011 May 30, 2010 Balance Sheets. 5.65% notes due February 15, 2019 $1,150.0 $1,150.0 Th e holder of the Class A Interests receives quarterly 6% notes due February 15, 2012 1,019.5 1,019.5 preferred distributions from available net income based 5.7% notes due February 15, 2017 1,000.0 1,000.0 on the application of a fl oating preferred return rate, 5.2% notes due March 17, 2015 750.0 750.0 currently equal to the sum of three-month LIBOR plus 5.25% notes due August 15, 2013 700.0 700.0 65 basis points, to the holder’s capital account balance 5.65% notes due September 10, 2012 520.8 520.8 established in the most recent mark-to-market valuation 5.4% notes due June 15, 2040 500.0 — (currently $248.1 million). 1.55% notes due May 16, 2014 300.0 — For fi nancial reporting purposes, the assets, liabili- Floating-rate notes due May 16, 2014 400.0 — Medium-term notes, 0.1% to 6.5%, ties, results of operations, and cash fl ows of GMC are due fi scal 2012 or later 204.4 204.4 included in our Consolidated Financial Statements. Th e Debt of consolidated contract manufacturer 15.0 20.9 return to the third-party investor is refl ected in net Other, including capital leases 14.1 10.2 earnings attributable to noncontrolling interests in the 6,573.8 5,375.8 Consolidated Statements of Earnings. Less amount due within one year (1,031.3) (107.3) In addition, we have seven foreign subsidiaries that Total long-term debt $5,542.5 $5,268.5 have minority interests totaling $4.4 million as of May 29, 2011. Principal payments due on long-term debt in the next Our noncontrolling interests contain restrictive cov- fi ve years based on stated contractual maturities, our enants. As of May 29, 2011, we were in compliance with intent to redeem, or put rights of certain note holders all of these covenants. are $1,031.3 million in fi scal 2012, $733.6 million in fi scal 2013, $1,402.6 million in fi scal 2014, $750.1 million in fi s- cal 2015, and less than $1 million in fi scal 2016.

64 General Mills NOTE 10. STOCKHOLDERS’ EQUITY Fiscal 2010 In Millions Pretax Tax Net

Cumulative preference stock of 5.0 million shares, with- Net earnings attributable out par value, is authorized but unissued. to General Mills $1,530.5 During fi scal 2011, we repurchased 31.8 million shares Net earnings attributable of common stock for an aggregate purchase price of to noncontrolling interests 4.5 Net earnings, including $1,163.5 million. During fi scal 2010, we repurchased 21.3 earnings attributable to million shares of common stock for an aggregate pur- noncontrolling interests $1,535.0 chase price of $691.8 million. During fi scal 2009, we Other comprehensive income (loss): repurchased 40.4 million shares of common stock for an Foreign currency translation $(163.3) $ — $ (163.3) aggregate purchase price of $1,296.4 million. Net actuarial loss (786.3) 314.8 (471.5) On June 28, 2010, our Board of Directors authorized Other fair value changes: the repurchase of up to 100 million shares of our com- Securities 1.9 (0.7) 1.2 mon stock. Purchases under the authorization can be Hedge derivatives (25.0) 10.6 (14.4) made in the open market or in privately negotiated Reclassifi cation to earnings: transactions, including the use of call options and other Hedge derivatives 44.4 (17.0) 27.4 derivative instruments, Rule 10b5-1 trading plans, and Amortization of losses accelerated repurchase programs. Th e authorization has and prior service costs 19.1 (7.6) 11.5 no specifi ed termination date. Other comprehensive income Th e following table provides details of total compre- (loss) in accumulated hensive income: other comprehensive loss (909.2) 300.1 (609.1)

Fiscal 2011 Other comprehensive loss In Millions Pretax Tax Net attributable to noncontrolling interests 0.2 — 0.2 Net earnings attributable Other comprehensive income (loss) $(909.0) $300.1 $ (608.9) to General Mills $1,798.3 Total comprehensive income $ 926.1 Net earnings attributable to noncontrolling interests 5.2 Net earnings, including earnings attributable to noncontrolling interests $1,803.5 Other comprehensive income (loss): Foreign currency translation $358.3 $ — $ 358.3 Net actuarial gain 93.5 (32.4) 61.1 Other fair value changes: Securities (5.8) 2.2 (3.6) Hedge derivatives (39.8) 14.4 (25.4) Reclassiﬁ cation to earnings: Hedge derivatives 29.8 (11.3) 18.5 Amortization of losses and prior service costs 108.7 (41.5) 67.2 Other comprehensive income (loss) in accumulated other comprehensive loss 544.7 (68.6) 476.1 Other comprehensive income attributable to noncontrolling interests 0.7 — 0.7 Other comprehensive income (loss) $545.4 $(68.6) $ 476.8 Total comprehensive income $2,280.3

Annual Report 2011 65 Fiscal 2009 In Millions May 29, 2011 May 30, 2010 In Millions Pretax Tax Net Foreign currency translation adjustments $ 553.2 $ 194.9 Net earnings attributable Unrealized gain (loss) from: to General Mills $ 1,304.4 Securities 2.0 5.6 Net earnings attributable Hedge derivatives (35.8) (28.9) to noncontrolling interests 9.3 Pension, other postretirement, Net earnings, including and postemployment benefi ts: earnings attributable to Net actuarial loss (1,509.5) (1,611.0) noncontrolling interests $ 1,313.7 Prior service costs (20.7) (47.5) Other comprehensive income (loss): Accumulated other comprehensive loss $(1,010.8) $(1,486.9) Foreign currency translation $ (286.6) $ — $ (286.6) Net actuarial loss (1,254.0) 477.8 (776.2) Other fair value changes: NOTE 11. STOCK PLANS Securities (0.6) 0.2 (0.4) Hedge derivatives 8.0 (3.4) 4.6 We use broad-based stock plans to help ensure that man- Reclassifi cation to earnings: agement’s interests are aligned with those of our stock- Hedge derivatives (11.9) 4.6 (7.3) holders. As of May 29, 2011, a total of 16,942,290 shares Amortization of losses were available for grant in the form of stock options, and prior service costs 24.2 (9.2) 15.0 restricted shares, restricted stock units, and shares of Other comprehensive income common stock under the 2009 Stock Compensation (loss) in accumulated Plan (2009 Plan) and the 2006 Compensation Plan other comprehensive loss (1,520.9) 470.0 (1,050.9) for Non-Employee Directors (2006 Director Plan). Th e Other comprehensive 2009 Plan also provides for the issuance of cash-settled income attributable to share-based units. Stock-based awards now outstanding noncontrolling interests (1.2) — (1.2) include some granted under the 1995, 1996, 1998 (senior Other comprehensive management), 1998 (employee), 2001, 2003, 2005, and income (loss) $(1,522.1) $470.0 $(1,052.1) 2007 stock plans and the Executive Incentive Plan (EIP), Total comprehensive income $ 261.6 under which no further awards may be granted. Th e stock plans provide for full vesting of options, restricted During fi scal 2009, we incurred unrecognized losses shares, restricted stock units, and cash-settled share- in excess of $1.1 billion on assets, primarily equity secu- based units upon completion of specifi ed service peri- rities, in our defi ned benefi t pension and other postre- ods or in certain circumstances, following a change of tirement benefi t plans. Th ese losses were recognized in control. other comprehensive income. In fi scal 2010 and future years, the losses are refl ected in pension expense using Stock Options Th e estimated fair values of stock options the market-related value of the plan assets over a fi ve granted and the assumptions used for the Black-Scholes year period and amortized using a declining balance option-pricing model were as follows: method over the average remaining service period of Fiscal Year active plan participants. 2011 2010 2009 In fi scal 2011, 2010, and 2009, except for reclassifi - Estimated fair values of cations to earnings, changes in other comprehensive stock options granted $ 4.12 $3.20 $4.70 income (loss) were primarily non-cash items. Assumptions: Accumulated other comprehensive loss balances, net Risk-free interest rate 2.9% 3.7% 4.4% of tax eff ects, were as follows: Expected term 8.5 years 8.5 years 8.5 years Expected volatility 18.5% 18.9% 16.1% Dividend yield 3.0% 3.4% 2.7%

66 General Mills Th e valuation of stock options is a signifi cant account- Options may be priced at 100 percent or more of the ing estimate that requires us to use judgments and fair market value on the date of grant, and generally assumptions that are likely to have a material impact vest four years aft er the date of grant. Options generally on our fi nancial statements. Annually, we make predic- expire within 10 years and one month aft er the date of tive assumptions regarding future stock price volatility, grant. employee exercise behavior, dividend yield, and the for- Information on stock option activity follows: feiture rate. We estimate the fair value of each option on the grant Weighted- Weighted- date using a Black-Scholes option-pricing model, which average average Options Exercise Options Exercise requires us to make predictive assumptions regarding Exercisable Price Per Outstanding Price Per future stock price volatility, employee exercise behavior, (Th ousands) Share (Th ousands) Share and dividend yield. We estimate our future stock price Balance as of volatility using the historical volatility over the expected May 25, 2008 76,389.2 $21.23 106,042.4 $22.68 term of the option, excluding time periods of volatility Granted 6,495.4 31.74 we believe a marketplace participant would exclude in Exercised (17,548.4) 19.60 estimating our stock price volatility. We also have con- Forfeited or expired (382.4) 27.50 sidered, but did not use, implied volatility in our esti- Balance as of mate, because trading activity in options on our stock, May 31, 2009 67,619.2 21.96 94,607.0 23.84 especially those with tenors of greater than 6 months, Granted 6,779.4 27.99 is insuffi cient to provide a reliable measure of expected Exercised (20,013.6) 19.87 volatility. Forfeited or expired (268.2) 24.82 Balance as of Our expected term represents the period of time May 30, 2010 47,726.6 22.89 81,104.6 25.17 that options granted are expected to be outstanding Granted 5,234.3 37.38 based on historical data to estimate option exercises Exercised (18,665.4) 22.59 and employee terminations within the valuation model. Forfeited or expired (126.2) 31.26 Separate groups of employees have similar historical Balance as of exercise behavior and therefore were aggregated into a May 29, 2011 39,221.7 $23.78 67,547.3 $26.82 single pool for valuation purposes. Th e weighted-average expected term for all employee groups is presented in the table above. Th e risk-free interest rate for periods Stock-based compensation expense related to stock during the expected term of the options is based on the option awards was $26.8 million in fi scal 2011, $34.4 mil- U.S. Treasury zero-coupon yield curve in eff ect at the lion in fi scal 2010, and $40.0 million in fi scal 2009. time of grant. Net cash proceeds from the exercise of stock options Any corporate income tax benefi t realized upon exer- less shares used for withholding taxes and the intrinsic cise or vesting of an award in excess of that previously value of options exercised were as follows: recognized in earnings (referred to as a windfall tax benefi t) is presented in the Consolidated Statements of Cash Fiscal Year Flows as a fi nancing cash fl ow. In Millions 2011 2010 2009 Realized windfall tax benefi ts are credited to addi- Net cash proceeds $410.4 $388.5 $305.9 tional paid-in capital within the Consolidated Balance Intrinsic value of Sheets. Realized shortfall tax benefi ts (amounts which options exercised $275.6 $271.8 $226.7 are less than that previously recognized in earnings) are fi rst off set against the cumulative balance of windfall tax benefi ts, if any, and then charged directly to income tax expense, potentially resulting in volatility in our consolidated eff ective income tax rate. We calculated a cumulative memo balance of windfall tax benefi ts from post-1995 fi scal years for the purpose of accounting for future shortfall tax benefi ts.

Annual Report 2011 67 Restricted Stock, Restricted Stock Units, and Cash- restricted stock units generally vest and become unre- Settled Share-Based Units Stock and units settled in stricted four years aft er the date of grant. Participants stock subject to a restricted period and a purchase price, are entitled to dividends on such awarded shares and if any (as determined by the Compensation Committee units, but only receive those amounts if the shares or of the Board of Directors), may be granted to key units vest. Th e sale or transfer of these shares and units employees under the 2009 Plan. Certain restricted stock is restricted during the vesting period. Participants hold- and restricted stock unit awards require the employee ing restricted stock, but not restricted stock units, are to deposit personally owned shares (on a one-for-one entitled to vote on matters submitted to holders of com- basis) during the restricted period. Restricted stock and mon stock for a vote.

Information on restricted stock unit and cash-settled share-based units activity follows:

Equity Classiﬁ ed Liability Classiﬁ ed

Share- Weighted- Share- Weighted- Cash-Settled Weighted- Settled Average Settled Average Share-Based Average Units Grant-Date Units Grant-Date Units Grant-Date (Th ousands) Fair Value (Th ousands) Fair Value (Th ousands) Fair Value

Non-vested as of May 30, 2010 10,209.8 $28.49 424.3 $28.64 3,703.7 $29.65 Granted 2,406.7 35.47 127.7 37.40 1,217.2 37.40 Vested (3,161.0) 26.46 (78.1) 29.02 (245.2) 31.33 Forfeited or expired (285.6) 31.61 (36.7) 30.04 (160.6) 31.36 Non-vested as of May 29, 2011 9,169.9 $30.92 437.2 $31.01 4,515.1 $31.58

Fiscal Year In Millions 2011 2010 2009 Number of units granted (thousands) 3,751.6 4,745.7 4,348.0 Weighted average price per unit $36.16 $28.03 $31.70

68 General Mills Th e total grant-date fair value of restricted stock unit NOTE 13. RETIREMENT BENEFITS AND awards that vested during fi scal 2011 was $93.6 million, POSTEMPLOYMENT BENEFITS and $26.1 million vested during fi scal 2010. As of May 29, 2011, unrecognized compensa- Defi ned Benefi t Pension Plans We have defi ned benefi t tion expense related to non-vested stock options and pension plans covering most United States, Canadian, restricted stock units was $170.7 million. Th is expense and United Kingdom employees. Benefi ts for salaried will be recognized over 19 months, on average. employees are based on length of service and fi nal aver- Stock-based compensation expense related to age compensation. Benefi ts for hourly employees include restricted stock units and cash-settled share-based pay- various monthly amounts for each year of credited ser- ment awards was $141.2 million for fi scal 2011, $131.0 vice. Our funding policy is consistent with the require- million for fi scal 2010, and $101.4 million for fi scal 2009. ments of applicable laws. We made $200.0 million of voluntary contributions to our principal domestic plans NOTE 12. EARNINGS PER SHARE in fi scal 2011. We do not expect to be required to make any contributions in fi scal 2012. Our principal domestic Basic and diluted earnings per share (EPS) were calcu- retirement plan covering salaried employees has a provi- lated using the following: sion that any excess pension assets would be allocated Fiscal Year to active participants if the plan is terminated within fi ve In Millions, Except per Share Data 2011 2010 2009 years of a change in control. Net earnings attributable to General Mills $1,798.3 $1,530.5 $1,304.4 Other Postretirement Benefi t Plans We also sponsor Average number of common plans that provide health care benefi ts to the majority shares - basic EPS 642.7 659.6 663.7 of our United States and Canadian retirees. Th e salaried Incremental share eff ect from: (a) health care benefi t plan is contributory, with retiree con- Stock options 16.6 17.7 17.9 tributions based on years of service. We make decisions Restricted stock, restricted to fund related trusts for certain employees and retirees stock units, and other 5.5 6.0 5.5 on an annual basis. We did not make voluntary contribu- Average number of tions to these plans in fi scal 2011 or fi scal 2010. common shares - diluted EPS 664.8 683.3 687.1 Earnings per share - basic $2.80 $2.32 $1.96 Health Care Cost Trend Rates Assumed health care Earnings per share - diluted $2.70 $2.24 $1.90 cost trends are as follows: (a) Incremental shares from stock options and restricted stock units are Fiscal Year computed by the treasury stock method. Stock options and restricted stock 2011 2010 units excluded from our computation of diluted EPS because they were not dilutive were as follows: Health care cost trend rate for next year 8.5% 9.0% Rate to which the cost trend rate is Fiscal Year assumed to decline (ultimate rate) 5.2% 5.2% In Millions 2011 2010 2009 Year that the rate reaches the Anti-dilutive stock options ultimate trend rate 2019 2019 and restricted stock units 4.8 6.3 14.2 We review our health care cost trend rates annually. Our review is based on data we collect about our health care claims experience and information provided by our actuaries. Th is information includes recent plan experience, plan design, overall industry experience and projections, and assumptions used by other similar organizations. Our initial health care cost trend rate is adjusted as necessary to remain consistent with this review, recent experiences, and short-term expectations. Our initial health care cost trend rate assumption is 8.5 percent for all retirees. Rates are graded down annually

Annual Report 2011 69 until the ultimate trend rate of 5.2 percent is reached in Th e Patient Protection and Aff ordable Care Act, as 2019 for all retirees. Th e trend rates are applicable for amended by the Health Care and Education Reconciliation calculations only if the retirees’ benefi ts increase as a Act of 2010 (collectively, the Act) was signed into law in result of health care infl ation. Th e ultimate trend rate March 2010. Th e Act codifi es health care reforms with is adjusted annually, as necessary, to approximate the staggered eff ective dates from 2010 to 2018. Estimates current economic view on the rate of long-term infl ation of the future impacts of several of the Act’s provisions plus an appropriate health care cost premium. Assumed are incorporated into our postretirement benefi t liability trend rates for health care costs have an important including the elimination of lifetime maximums and the eff ect on the amounts reported for the other postretire- imposition of an excise tax on high cost health plans. ment benefi t plans. Th ese changes resulted in a $24.0 million increase in our A one percentage point change in the health care cost postretirement benefi t liability in fi scal 2010. trend rate would have the following eff ects:

One One Postemployment Benefi t Plans Under certain circum- Percentage Percentage stances, we also provide accruable benefi ts to former Point Point In Millions Increase Decrease or inactive employees in the United States, Canada, and Mexico, and members of our Board of Directors, Eff ect on the aggregate of the service and including severance and certain other benefits pay- interest cost components in fi scal 2012 $ 6.2 $ (5.4) able upon death. We recognize an obligation for any Eff ect on the other postretirement accumulated benefi t obligation as of of these benefi ts that vest or accumulate with service. May 29, 2011 82.4 (73.6) Postemployment benefi ts that do not vest or accumulate with service (such as severance based solely on annual pay rather than years of service) are charged to expense when incurred. Our postemployment benefi t plans are unfunded. We use our fi scal year end as the measurement date for our defi ned benefi t pension and other postretirement benefi t plans.

70 General Mills Summarized fi nancial information about defi ned benefi t pension, other postretirement, and postemployment benefi ts plans is presented below:

Other Defi ned Benefi t Postretirement Postemployment Pension Plans Benefi t Plans Benefi t Plans Fiscal Year Fiscal Year Fiscal Year In Millions 2011 2010 2011 2010 2011 2010 Change in Plan Assets: Fair value at beginning of year $3,529.8 $3,157.8 $ 284.3 $ 235.6 Actual return on assets 688.9 535.9 60.7 41.0 Employer contributions 220.7 17.1 0.1 0.1 Plan participant contributions 4.1 3.5 11.8 11.3 Benefi ts payments (188.2) (182.6) (3.1) (3.7) Foreign currency 8.7 (1.9) — — Fair value at end of year $4,264.0 $3,529.8 $ 353.8 $ 284.3 Change in Projected Benefi t Obligation: Benefi t obligation at beginning of year $4,030.0 $3,167.3 $1,060.6 $ 852.0 $ 130.3 $ 112.5 Service cost 101.4 70.9 18.7 12.9 8.0 7.2 Interest cost 230.9 230.3 60.1 61.6 5.1 5.6 Plan amendment — 25.8 (35.3) 7.5 — — Curtailment/other — — — — 4.2 10.6 Plan participant contributions 4.1 3.5 11.8 11.3 — — Medicare Part D reimbursements — — 4.5 4.7 — — Actuarial loss (gain) 271.2 716.4 2.0 168.1 (0.5) 11.8 Benefi ts payments (188.2) (182.6) (56.9) (57.5) (16.1) (17.6) Foreign currency 9.0 (1.6) 0.3 — 0.3 0.2 Projected benefi t obligation at end of year $4,458.4 $4,030.0 $1,065.8 $1,060.6 $ 131.3 $ 130.3 Plan assets less than benefi t obligation as of fi scal year end $ (194.4) $ (500.2) $ (712.0) $ (776.3) $(131.3) $(130.3)

Th e accumulated benefi t obligation for all defi ned benefi t pension plans was $3,991.6 million as of May 29, 2011, and $3,620.3 million as of May 30, 2010.

Amounts recognized in AOCI as of May 29, 2011, and May 30, 2010, are as follows:

Other Defi ned Benefi t Postretirement Postemployment Pension Plans Benefi t Plans Benefi t Plans Total Fiscal Year Fiscal Year Fiscal Year Fiscal Year In Millions 2011 2010 2011 2010 2011 2010 2011 2010

Net actuarial loss $(1,313.9) $(1,369.9) $(181.3) $(225.2) $(14.3) $(15.9) $(1,509.5) $(1,611.0) Prior service (costs) credits (35.8) (41.3) 20.7 1.0 (5.6) (7.2) (20.7) (47.5) Amounts recorded in accumulated other comprehensive loss $(1,349.7) $(1,411.2) $(160.6) $(224.2) $(19.9) $(23.1) $(1,530.2) $(1,658.5)

Annual Report 2011 71 Plans with accumulated beneﬁ t obligations in excess of plan assets are as follows:

Other Defi ned Benefi t Postretirement Postemployment Pension Plans Benefi t Plans Benefi t Plans Fiscal Year Fiscal Year Fiscal Year In Millions 2011 2010 2011 2010 2011 2010

Projected beneﬁ t obligation $335.1 $299.6 $ — $ — $ — $ — Accumulated beneﬁ t obligation 280.6 252.5 1,065.8 1,060.6 131.3 130.3 Plan assets at fair value 9.0 17.3 353.8 284.3 — —

Components of net periodic beneﬁ t expense (income) are as follows:

Other Defi ned Benefi t Postretirement Postemployment Pension Plans Benefi t Plans Benefi t Plans Fiscal Year Fiscal Year Fiscal Year In Millions 2011 2010 2009 2011 2010 2009 2011 2010 2009

Service cost $ 101.4 $ 70.9 $ 76.5 $ 18.7 $ 12.9 $ 14.2 $ 8.0 $ 7.2 $ 6.5 Interest cost 230.9 230.3 215.4 60.1 61.6 61.2 5.1 5.7 4.9 Expected return on plan assets (408.5) (400.1) (385.8) (33.2) (29.2) (30.0) — — — Amortization of losses 81.4 8.4 7.8 14.4 2.0 7.2 2.1 1.0 1.0 Amortization of prior service costs (credits) 9.0 6.9 7.4 (0.6) (1.6) (1.4) 2.4 2.4 2.2 Other adjustments — — — — — — 4.2 10.6 8.4 Net expense (income) $ 14.2 $ (83.6) $ (78.7) $ 59.4 $ 45.7 $ 51.2 $ 21.8 $ 26.9 $ 23.0

We expect to recognize the following amounts in net periodic beneﬁ t expense (income) in ﬁ scal 2012:

Defi ned Benefi t Other Postretirement Postemployment In Millions Pension Plans Benefi t Plans Benefi t Plans

Amortization of losses $108.2 $14.4 $1.8 Amortization of prior service costs (credits) 8.6 (3.4) 2.1

Assumptions Weighted-average assumptions used to determine ﬁ scal year-end beneﬁ t obligations are as follows:

Other Defi ned Benefi t Postretirement Postemployment Pension Plans Benefi t Plans Benefi t Plans Fiscal Year Fiscal Year Fiscal Year 2011 2010 2011 2010 2011 2010

Discount rate 5.45% 5.85% 5.35% 5.80% 4.77% 5.12% Rate of salary increases 4.92 4.93 — — 4.92 4.93

72 General Mills Weighted-average assumptions used to determine ﬁ scal year net periodic beneﬁ t expense (income) are as follows:

Other Defi ned Benefi t Postretirement Postemployment Pension Plans Benefi t Plans Benefi t Plans Fiscal Year Fiscal Year Fiscal Year 2011 2010 2009 2011 2010 2009 2011 2010 2009

Discount rate 5.85% 7.49% 6.88% 5.80% 7.45% 6.90% 5.12% 7.06% 6.64% Rate of salary increases 4.93 4.92 4.93 — — — 4.93 4.93 4.93 Expected long-term rate of return on plan assets 9.53 9.55 9.55 9.33 9.33 9.35 — — —

Discount Rate Our discount rate assumptions are deter- curve, including a margin to that index based on our mined annually as of the last day of our fi scal year for credit risk. Th is forward interest rate curve is applied to our defi ned benefi t pension, other postretirement, and our expected future cash outfl ows to determine our dis- postemployment benefi t plan obligations. We also use count rate assumptions. the same discount rates to determine defi ned benefi t pension, other postretirement, and postemployment Fair Value of Plan Assets We categorize plan assets benefi t plan income and expense for the following fi s- with a three level fair value hierarchy as described in cal year. We work with our actuaries to determine the Note 7. Th e fair values of our pension and postretire- timing and amount of expected future cash outfl ows to ment benefi t plans assets at May 29, 2011, and May 30, plan participants and, using the top quartile of AA-rated 2010, by asset category were as follows: corporate bond yields, to develop a forward interest rate

May 29, 2011 In Millions Level 1 Level 2 Level 3 Total Assets Fair value measurement of pension plan assets: Equity (a) $ 1,052.5 $ 900.2 $ 568.5 $ 2,521.2 Fixed income (b) 794.7 174.4 0.2 969.3 Real asset investments (c) 113.0 95.2 356.9 565.1 Other investments (d) — 52.2 0.3 52.5 Cash and accruals 155.9 — — 155.9 Total fair value measurement of pension plan assets $ 2,116.1 $ 1,222.0 $925.9 $4,264.0 Fair value measurement of postretirement beneﬁ t plan assets: Equity (a) $ 13.5 $ 131.0 26.3 $ 170.8 Fixed income (b) 1.8 55.9 0.2 57.9 Real asset investments (c) — 7.2 13.6 20.8 Other investments (d) — 83.9 — 83.9 Cash and accruals 20.4 — — 20.4 Fair value measurement of postretirement beneﬁ t plan assets $ 35.7 $ 278.0 $ 40.1 $ 353.8

Annual Report 2011 73 May 30, 2010 In Millions Level 1 Level 2 Level 3 Total Assets Fair value measurement of pension plan assets: Equity (a) $ 744.5 $ 716.6 $ 512.8 $ 1,973.9 Fixed income (b) 700.0 206.0 3.9 909.9 Real asset investments (c) 72.4 75.8 298.7 446.9 Other investments (d) — 39.9 0.3 40.2 Cash and accruals 158.9 — — 158.9 Total fair value measurement of pension plan assets $ 1,675.8 $ 1,038.3 $ 815.7 $3,529.8 Fair value measurement of postretirement beneﬁ t plan assets: Equity (a) $10.1 81.4 25.7 117.2 Fixed income (b) 1.1 46.1 1.7 48.9 Real asset investments (c) 0.1 3.7 14.6 18.4 Other investments (d) — 71.4 — 71.4 Cash and accruals 28.4 — — 28.4 Fair value measurement of postretirement beneﬁ t plan assets $ 39.7 $ 202.6 $ 42.0 $ 284.3

(a) Primarily publicly traded common stock and private equity partnerships for purposes of total return and to maintain equity exposure consistent with policy allocations. Investments include: i) United States and international equity securities, mutual funds and equity futures valued at closing prices from national exchanges; and ii) commingled funds, privately held securities and private equity partnerships valued at unit values or net asset values provided by the investment managers, which are based on the fair value of the underlying investments. Various methods are used to determine fair values and may include the cost of the investment, most recent fi nancing, and expected cash fl ows. For some of these investments, realization of the estimated fair value is dependent upon transactions between willing sellers and buyers. (b) Primarily government and corporate debt securities for purposes of total return and managing fi xed income exposure to policy allocations. Investments include: i) fi xed income securities and bond futures generally valued at closing prices from national exchanges, fi xed income pricing models and/or independent fi nancial analysts; and ii) fi xed commingled funds valued at unit values provided by the investment managers, which are based on the fair value of the underlying investments. (c) Publicly traded common stock and limited partnerships in the energy and real estate sectors for purposes of total return. Investments include: i) energy and real estate securities generally valued at closing prices from national exchanges; and ii) commingled funds, private securities, and limited partnerships valued at unit values or net asset values provided by the investment managers, which are generally based on the fair value of the underlying investments. (d) Global balanced fund of equity, fi xed income and real estate securities for purposes of meeting Canadian pension plan asset allocation policies and insurance and annuity contracts for purposes of providing a stable stream of income for retirees and to fund postretirement medical benefi ts. Fair values are derived from unit values provided by the investment managers, which are generally based on the fair value of the underlying investments and contract fair values from the providers.

74 General Mills Th e following table is a roll forward of the Level 3 investments of our pension and postretirement beneﬁ t plan assets during the years ended May 29, 2011, and May 30, 2010:

Fiscal 2011 Purchases, Sales Balance as of Transfers Issuances, and Net Balance as of In Millions May 30, 2010 In/(Out) Settlements (Net) Gain May 29, 2011

Pension benefi t plan assets: Equity $512.8 $2.4 $(48.1) $101.4 $568.5 Fixed income 3.9 (0.9) (4.3) 1.5 0.2 Real asset investments 298.7 — 16.0 42.2 356.9 Other investments 0.3 — — — 0.3 Fair value activity of pension level 3 plan assets $815.7 $1.5 $(36.4) $145.1 $925.9 Postretirement benefi t plan assets: Equity 25.7 $ — $ (3.7) $ 4.3 $ 26.3 Fixed income 1.7 — (1.5) — 0.2 Real asset investments 14.6 — (2.2) 1.2 13.6 Fair value activity of postretirement benefi t level 3 plan assets: $ 42.0 $ — $ (7.4) $ 5.5 $ 40.1

Fiscal 2010 Purchases, Sales Balance as of Transfers Issuances, and Net Balance as of In Millions May 31, 2009 In/(Out) Settlements (Net) Gain/(Loss) May 30, 2010

Pension benefi t plan assets: Equity $423.9 $ — $ 17.0 $ 71.9 $512.8 Fixed income 4.2 — (1.2) 0.9 3.9 Real asset investments 275.2 — 25.0 (1.5) 298.7 Other investments 0.5 — (0.3) 0.1 0.3 Fair value activity of pension level 3 plan assets $703.8 $ — $ 40.5 $ 71.4 $815.7 Postretirement benefi t plan assets: Equity $ 23.8 $ — $ (1.5) $ 3.4 $ 25.7 Fixed income 1.5 — — 0.2 1.7 Real asset investments 17.0 — (0.6) (1.8) 14.6 Fair value activity of postretirement benefi t level 3 plan assets: $ 42.3 $ — $ (2.1) $ 1.8 $ 42.0

Th e net change in Level 3 assets attributable to unre- performance, our estimate of future long-term returns alized gains at May 29, 2011, were $96.8 million for our by asset class (using input from our actuaries, invest- pension plan assets, and $1.9 million for our postretirement services, and investment managers), and long- ment plan assets. term infl ation assumptions. We review this assumption annually for each plan, however, our annual investment Expected Rate of Return on Plan Assets Our expected performance for one particular year does not, by itself, rate of return on plan assets is determined by our signifi cantly infl uence our evaluation. asset allocation, our historical long-term investment

Annual Report 2011 75 Defi ned Other Weighted-average asset allocations for the past two Benefi t Postretirement Medicare Postemployment fi scal years for our defi ned benefi t pension and other Pension Benefi t Plans Subsidy Benefi t In Millions Plans Gross Payments Receipts Plans postretirement benefi t plans are as follows: 2012 $ 204.8 $ 58.6 $ 5.0 $18.4 Defi ned Benefi t Other Postretirement 2013 213.8 62.6 5.5 17.3 Pension Plans Benefi t Plans 2014 223.3 64.6 6.0 16.3 Fiscal Year Fiscal Year 2015 233.2 66.6 6.5 15.1 2011 2010 2011 2010 2016 243.8 39.6 7.1 14.4 Asset category: 2017-2021 1,402.3 387.7 38.9 66.6 United States equities 30.1% 32.6% 37.6% 37.3% International equities 18.9 17.1 18.7 18.3 Private equities 13.5 14.7 7.3 9.9 Defi ned Contribution Plans Th e General Mills Savings Fixed income 23.9 22.4 30.1 28.1 Plan is a defi ned contribution plan that covers domestic Real assets 13.6 13.2 6.3 6.4 salaried, hourly, nonunion, and certain union employees. Total 100.0% 100.0% 100.0% 100.0% Th is plan is a 401(k) savings plan that includes a number of investment funds, including a Company stock Th e investment objective for our defi ned benefi t pen- fund and an Employee Stock Ownership Plan (ESOP). sion and other postretirement benefi t plans is to secure We sponsor another money purchase plan for certain the benefi t obligations to participants at a reasonable domestic hourly employees with net assets of $18.1 mil- cost to us. Our goal is to optimize the long-term return lion as of May 29, 2011, and $16.8 million as of May on plan assets at a moderate level of risk. Th e defi ned 30, 2010. We also sponsor defi ned contribution plans benefi t pension and other postretirement portfolios are in many of our foreign locations. Our total recognized broadly diversifi ed across asset classes. Within asset expense related to defi ned contribution plans was $41.8 classes, the portfolios are further diversified across million in fi scal 2011, $64.5 million in fi scal 2010, and investment styles and investment organizations. For the $59.5 million in fi scal 2009. defi ned benefi t pension and other postretirement benefi t We matched a percentage of employee contributions plans, the long-term investment policy allocations are: to the General Mills Savings Plan with a base match 30 percent to equities in the United States; 20 percent plus a variable year-end match that depended on annual to international equities; 10 percent to private equities; results. Eff ective April 1, 2010, the company match is 30 percent to fi xed income; and 10 percent to real assets directed to investment options of the participant’s (real estate, energy, and timber). Th e actual allocations choosing. Prior to April 1, 2010, the company match was to these asset classes may vary tactically around the invested in Company stock in the ESOP. Th e number of long-term policy allocations based on relative market shares of our common stock allocated to participants in valuations. the ESOP was 11.2 million as of May 29, 2011, and 11.9 million as of May 30, 2010. Contributions and Future Benefi t Payments We do Th e ESOP’s only assets are our common stock and not expect to make contributions to our defi ned ben- temporary cash balances. Th e ESOP’s share of the total efi t, other postretirement, and postemployment benefi ts defi ned contribution expense was $53.7 million in fi s- plans in fi scal 2012. Actual fi scal 2012 contributions cal 2010 and $50.6 million in fi scal 2009. Th e ESOP’s could exceed our current projections, as infl uenced by expense was calculated by the “shares allocated” method. our decision to undertake discretionary funding of our Th e Company stock fund and the ESOP held $648.1 benefi t trusts and future changes in regulatory require- million and $610.3 million of Company common stock as ments. Estimated benefit payments, which reflect of May 29, 2011, and May 30, 2010. expected future service, as appropriate, are expected to be paid from fi scal 2012 to 2021 as follows:

76 General Mills NOTE 14. INCOME TAXES Th e tax eff ects of temporary diff erences that give rise to deferred tax assets and liabilities are as follows: Th e components of earnings before income taxes and aft er-tax earnings from joint ventures and the corre- In Millions May 29,2011 May 30, 2010 sponding income taxes thereon are as follows: Accrued liabilities $ 129.5 $ 148.5 Compensation and employee benefi ts 582.9 584.9 Fiscal Year Pension liability 74.1 183.8 In Millions 2011 2010 2009 Tax credit carryforwards 62.0 — Earnings before income Stock, partnership, and taxes and aft er-tax earnings miscellaneous investments 500.6 474.9 from joint ventures: Capital losses 92.1 93.1 United States $2,144.8 $2,060.4 $1,717.5 Net operating losses 140.9 119.9 Foreign 283.4 144.1 224.7 Other 123.7 150.7 Total earnings before Gross deferred tax assets 1,705.8 1,755.8 income taxes and aft er-tax Valuation allowance 404.5 392.0 earnings from joint ventures $2,428.2 $2,204.5 $1,942.2 Net deferred tax assets 1,301.3 1,363.8 Income taxes: Brands 1,289.1 1,279.5 Currently payable: Fixed assets 394.6 307.6 Federal $ 370.0 $ 616.0 $ 457.8 Intangible assets 122.3 107.4 State and local 76.9 87.4 37.3 Tax lease transactions 63.0 68.7 Foreign 68.9 45.5 9.5 Inventories 53.0 55.6 Total current 515.8 748.9 504.6 Stock, partnership, and Deferred: miscellaneous investments 424.5 348.2 Federal 178.9 38.5 155.7 Unrealized hedges 34.9 11.4 State and local 30.8 (4.9) 36.3 Other 20.0 17.3 Foreign (4.4) (11.3) 23.8 Gross deferred tax liabilities 2,401.4 2,195.7 Total deferred 205.3 22.3 215.8 Net deferred tax liability $ 1,100.1 $ 831.9 Total income taxes $ 721.1 $ 771.2 $ 720.4

In fi scal 2011, we changed the classifi cation of certain Th e following table reconciles the United States statu- gross deferred tax assets and liabilities to better refl ect tory income tax rate with our eff ective income tax rate: current components and reclassifi ed the components for fi scal 2010 to conform to the current year presentation. Fiscal Year We have established a valuation allowance against cer- 2011 2010 2009 tain of the categories of deferred tax assets described United States statutory rate 35.0% 35.0% 35.0% above as current evidence does not suggest we will real- State and local income taxes, ize suffi cient taxable income of the appropriate character net of federal tax benefi ts 2.7 2.5 2.9 (e.g., ordinary income versus capital gain income) within Foreign rate diff erences (2.0) (1.8) (2.3) the carry forward period to allow us to realize these Enactment date eff ect of deferred tax benefi ts. health care reform — 1.3 — Of the total valuation allowance of $404.5 million, Court decisions and audit settlements (3.7) — 2.7 $168.2 million relates to a deferred tax asset for losses Domestic manufacturing deduction (1.6) (1.8) (1.1) recorded as part of the Pillsbury acquisition. Of the Other, net (0.7) (0.2) (0.1) remaining valuation allowance, $92.1 million relates to Eff ective income tax rate 29.7% 35.0% 37.1% capital loss carryforwards and $140.9 million relates to state and foreign operating loss carryforwards. We have approximately $60.2 million of U.S. foreign tax credit carryforwards for which no valuation allowance has been recorded. As of May 29, 2011, we believe it is more likely than not that the remainder of our deferred tax assets are realizable.

Annual Report 2011 77 Th e carryforward periods on our foreign loss carryfor- we recorded an $11.5 million increase in our total liabili- wards are as follows: $102.0 million do not expire; $8.9 ties for uncertain tax positions. We believe our posi- million expire in fi scal 2012 and 2013; and $18.3 million tions are supported by substantial technical authority expire in fi scal 2014 and beyond. and have appealed this decision. We do not expect to We have not recognized a deferred tax liability for make a payment related to this matter until it is defi ni- unremitted earnings of $2.4 billion from our foreign tively resolved. operations because our subsidiaries have invested or In fiscal 2009, the U.S. Court of Appeals for the will invest the undistributed earnings indefi nitely, or Eighth Circuit issued an opinion reversing a district the earnings will be remitted in a tax-free transaction. court decision rendered in fi scal 2008. As a result, we It is not practicable for us to determine the amount of recorded $52.6 million (including interest) of income tax unrecognized deferred tax liabilities on these indefi nitely expense in fi scal 2009 related to the reversal of cumula- reinvested earnings. Deferred taxes are recorded for tive income tax benefi ts from this uncertain tax matter earnings of our foreign operations when we determine recognized in fi scal years 1992 through 2008. All out- that such earnings are no longer indefi nitely reinvested. standing liabilities associated with this matter were paid We are subject to federal income taxes in the United during fi scal 2011. States as well as various state, local, and foreign jurisdic- Various tax examinations by United States state tax- tions. A number of years may elapse before an uncertain ing authorities could be conducted for any open tax year, tax position is audited and fi nally resolved. While it is which vary by jurisdiction, but are generally from 3 to 5 oft en diffi cult to predict the fi nal outcome or the timing years. Currently, several state examinations are in prog- of resolution of any particular uncertain tax position, ress. Th e Canada Revenue Agency (CRA) has completed we believe that our liabilities for income taxes refl ect the its review of our income tax returns in Canada for fi scal most likely outcome. We adjust these liabilities, as well years 2003 to 2005. Th e CRA has raised assessments as the related interest, in light of changing facts and cir- for these years that we are currently appealing. We cumstances. Settlement of any particular position would believe our positions are supported by substantial tech- usually require the use of cash. nical authority and are vigorously defending our posi- Th e number of years with open tax audits varies tions. We do not anticipate that any United States or depending on the tax jurisdiction. Our major taxing juris- Canadian tax adjustments will have a signifi cant impact dictions include the United States (federal and state) and on our fi nancial position or results of operations. Canada. Th e IRS has completed its review of our fed- We apply a more-likely-than-not threshold to the rec- eral income tax returns for fi scal years 2008 and prior ognition and derecognition of uncertain tax positions. and has proposed adjustments related to the amount of Accordingly we recognize the amount of tax benefi t research and development tax credits claimed. We have that has a greater than 50 percent likelihood of being appealed these proposed adjustments. ultimately realized upon settlement. Future changes in During fi scal 2011, we reached a settlement with the judgment related to the expected ultimate resolution of IRS concerning certain corporate income tax adjust- uncertain tax positions will aff ect earnings in the quar- ments for fi scal years 2002 to 2008. Th e adjustments ter of such change. primarily relate to the amount of capital loss, deprecia- Th e following table sets forth changes in our total tion, and amortization we reported as a result of the gross unrecognized tax benefit liabilities, excluding sale of noncontrolling interests in our GMC subsidiary. accrued interest, for fi scal 2011. Approximately $152 mil- As a result, we recorded a $108.1 million reduction in lion of this total represents the amount that, if recog- our total liabilities for uncertain tax positions in fi scal nized, would aff ect our eff ective income tax rate in future 2011. We made payments totaling $385.3 million in fi scal periods. Th is amount diff ers from the gross unrecog- 2011 related to this settlement. In addition, we made a nized tax benefi ts presented in the table because certain payment of $17.6 million in fi scal 2009 related to adjust- of the liabilities below would impact deferred taxes if ments made in connection with IRS audits of fi scal years recognized or are the result of stock compensation items 2004 to 2006. impacting additional paid-in capital. We also would During 2011, the Superior Court of the State of record a decrease in U.S. federal income taxes upon rec- California issued an adverse decision concerning our ognition of the state tax benefi ts included therein. state income tax apportionment calculations. As a result,

78 General Mills Fiscal Year Noncancelable future lease commitments are: In Millions 2011 2010 Operating Capital Balance, beginning of year $552.9 $570.1 In Millions Leases Leases Tax positions related to current year: 2012 $ 74.4 $ 2.2 Additions 25.0 19.7 2013 52.5 1.8 Tax positions related to prior years: 2014 36.4 0.9 Additions 75.6 7.1 2015 26.1 0.5 Reductions (131.2) (37.6) 2016 22.6 0.3 Settlements (287.9) (1.9) Aft er 2016 49.4 0.2 Lapses in statutes of limitations (8.2) (4.5) Total noncancelable future Balance, end of year $226.2 $552.9 lease commitments $ 261.4 $ 5.9 Less: interest $(0.4) As of May 29, 2011, we do not expect to pay any Present value of obligations under capital leases $ 5.5 unrecognized tax benefi t liabilities within the next 12 months. We are not able to reasonably estimate the timing of future cash fl ows beyond 12 months due to Th ese future lease commitments will be partially off set uncertainties in the timing of tax audit outcomes. Th e by estimated future sublease receipts of approximately remaining amount of our unrecognized tax liability was $13 million. Depreciation on capital leases is recorded as classifi ed in other liabilities. depreciation expense in our results of operations. We report accrued interest and penalties related As of May 29, 2011, we have issued guarantees and to unrecognized tax benefi t liabilities in income tax comfort letters of $591.2 million for the debt and other expense. For fi scal 2011, we recognized a net benefi t of obligations of consolidated subsidiaries, and guarantees $10.5 million associated with tax-related net interest and comfort letters of $340.6 million for the debt and and penalties, and had $53.4 million of accrued inter- other obligations of non-consolidated affi liates, mainly est and penalties as of May 29, 2011. For fi scal 2010, we CPW. In addition, off -balance sheet arrangements are recognized a net $16.2 million of tax-related interest and generally limited to the future payments under non-can- penalties, and had $174.8 million of accrued interest and celable operating leases, which totaled $261.4 million as penalties as of May 30, 2010. of May 29, 2011. We are involved in various claims, including envi- NOTE 15. LEASES AND OTHER COMMITMENTS ronmental matters, arising in the ordinary course of business. In the opinion of management, the range of An analysis of rent expense by type of property for reasonably possible losses on these matters, either indi- operating leases follows: vidually or in aggregate, will not have a material adverse eff ect on our fi nancial position or results of operations. Fiscal Year In Millions 2011 2010 2009 NOTE 16. BUSINESS SEGMENT AND GEOGRAPHIC Warehouse space $ 63.4 $ 55.7 $ 51.4 INFORMATION Equipment 32.1 30.6 39.1 Other 56.9 51.6 49.5 We operate in the consumer foods industry. We have Total rent expense $ 152.4 $ 137.9 $140.0 three operating segments by type of customer and geographic region as follows: U.S. Retail, 68.3 percent of Some operating leases require payment of property our fi scal 2011 consolidated net sales; International, 19.3 taxes, insurance, and maintenance costs in addition to percent of our fi scal 2011 consolidated net sales; and the rent payments. Contingent and escalation rent in Bakeries and Foodservice, 12.4 percent of our fi scal 2011 excess of minimum rent payments and sublease income consolidated net sales. netted in rent expense were insignifi cant. Our U.S. Retail segment refl ects business with a wide variety of grocery stores, mass merchandisers, membership stores, natural food chains, and drug, dollar and discount chains operating throughout the United States. Our major product categories in this business segment are ready-to-eat cereals, refrigerated yogurt,

Annual Report 2011 79 ready-to-serve soup, dry dinners, shelf stable and frozen expenses are neither maintained nor available by operat- vegetables, refrigerated and frozen dough products, des- ing segment. sert and baking mixes, frozen pizza and pizza snacks, As discussed in Note 1, at the beginning of fi scal grain, fruit and savory snacks, and a wide variety of 2011 we revised certain SG&A expense classifi cations organic products including soup, granola bars, and cereal. between segment operating profi t and unallocated cor- In Canada, our major product categories are ready- porate items and shift ed selling responsibility for a cus- to-eat cereals, shelf stable and frozen vegetables, dry tomer from our Bakeries and Foodservice segment to the dinners, refrigerated and frozen dough products, des- U.S. Retail segment. All prior period amounts have been sert and baking mixes, frozen pizza snacks, and grain restated to conform to the current period presentation. and fruit snacks. In markets outside North America, Our operating segment results were as follows: our product categories include super-premium ice cream and frozen desserts, refrigerated yogurt, grain snacks, Fiscal Year In Millions 2011 2010 2009 shelf stable and frozen vegetables, refrigerated and frozen dough products, and dry dinners. Our International Net sales: segment also includes products manufactured in the U.S. Retail $10,163.9 $10,209.8 $ 9,973.6 United States for export, mainly to Caribbean and Latin International 2,875.5 2,684.9 2,571.8 American markets, as well as products we manufacture Bakeries and Foodservice 1,840.8 1,740.9 2,010.4 Total $14,880.2 $14,635.6 $14,555.8 for sale to our international joint ventures. Revenues Operating profi t: from export activities are reported in the region or coun- U.S. Retail $ 2,347.9 $ 2,385.2 $ 2,206.6 try where the end customer is located. International 291.4 192.1 239.2 In our Bakeries and Foodservice segment our major Bakeries and Foodservice 306.3 263.2 178.4 product categories are cereals, snacks, yogurt, unbaked Total segment operating profi t 2,945.6 2,840.5 2,624.2 and fully baked frozen dough products, baking mixes, Unallocated corporate items 184.1 203.0 342.5 and fl our. Many products we sell are branded to the Divestitures (gain), net (17.4) — (84.9) consumer and nearly all are branded to our customers. Restructuring, impairment, We sell to distributors and operators in many customer and other exit costs 4.4 31.4 41.6 channels including foodservice, convenience stores, Operating profi t $ 2,774.5 $ 2,606.1 $ 2,325.0 vending, and supermarket bakeries. Substantially all of this segment’s operations are located in the United Th e following table provides fi nancial information by States. geographic area: Operating profi t for these segments excludes unallocated corporate items, restructuring, impairment, Fiscal Year In Millions 2011 2010 2009 and other exit costs, and divestiture gains and losses. Unallocated corporate items include corporate overhead Net sales: expenses, variances to planned domestic employee ben- United States $11,987.8 $11,934.4 $11,942.1 efi ts and incentives, annual contributions to the General Non-United States 2,892.4 2,701.2 2,613.7 Mills Foundation, and other items that are not part of Total $14,880.2 $14,635.6 $14,555.8 our measurement of segment operating performance. May 29, May 30, Th ese include gains and losses arising from the revalu- In Millions 2011 2010 ation of certain grain inventories and gains and losses Cash and cash equivalents: from mark-to-market valuation of certain commodity United States $123.7 $ 66.1 positions until passed back to our operating segments. Non-United States 495.9 607.1 Th ese items aff ecting operating profi t are centrally man- Total $619.6 $ 673.2 aged at the corporate level and are excluded from the measure of segment profi tability reviewed by execu- May 29, May 30, tive management. Under our supply chain organization, In Millions 2011 2010 our manufacturing, warehouse, and distribution activi- Land, buildings, and equipment: ties are substantially integrated across our operations United States $2,752.1 $2,619.7 in order to maximize effi ciency and productivity. As a Non-United States 593.8 508.0 result, fi xed assets and depreciation and amortization Total $3,345.9 $3,127.7

80 General Mills May 29, May 30, NOTE 17. SUPPLEMENTAL INFORMATION In Millions 2011 2010

Th e components of certain Consolidated Balance Sheet Other assets: Pension assets $128.6 $ 2.2 accounts are as follows: Investments in and advances

May 29, May 30, to joint ventures 519.1 398.1 In Millions 2011 2010 Life insurance 87.2 88.2 Receivables: Derivative receivables 13.3 130.1 From customers $1,178.6 $1,057.4 Miscellaneous 114.3 144.8 Less allowance for doubtful accounts (16.3) (15.8) Total $862.5 $763.4 Total $1,162.3 1,041.6 May 29, May 30, In Millions 2011 2010 May 29, May 30, In Millions 2011 2010 Other current liabilities: Inventories: Accrued payroll $ 303.3 $ 331.4 Raw materials and packaging $ 286.2 $ 247.5 Accrued interest 114.0 136.5 Finished goods 1,273.6 1,131.4 Accrued trade and consumer promotions 463.0 555.2 Grain 218.0 107.4 Accrued taxes 80.4 440.2 Excess of FIFO or weighted-average Derivative payable 34.8 18.1 cost over LIFO cost (a) (168.5) (142.3) Accrued customer advances 36.4 25.5 Total $1,609.3 $1,344.0 Grain contracts 28.7 12.7 Miscellaneous 260.9 242.6 (a) Inventories of $1,034.1 million as of May 29, 2011, and $958.3 million as of Total $1,321.5 $1,762.2 May 30, 2010, were valued at LIFO.

May 29, May 30, May 29, May 30, In Millions 2011 2010 In Millions 2011 2010 Other noncurrent liabilities: Prepaid expenses and other current assets: Interest rate swaps $ 22.2 $ 180.2 Prepaid expenses $161.0 $127.5 Accrued compensation and beneﬁ ts, Accrued interest receivable, including obligations for underfunded including interest rate swaps 29.0 64.9 other postretirement and Derivative receivables, postemployment beneﬁ t plans 1,412.8 1,588.1 primarily commodity-related 109.1 48.8 Accrued income taxes 233.3 276.3 Other receivables 104.7 101.4 Miscellaneous 64.9 74.1 Grain contracts 57.3 11.4 Miscellaneous 22.4 24.5 Total $1,733.2 $2,118.7 Total $483.5 $378.5 Certain Consolidated Statements of Earnings amounts May 29, May 30, are as follows: In Millions 2011 2010 Fiscal Year In Millions 2011 2010 2009 Land, buildings, and equipment: Land $ 61.2 $ 58.0 Depreciation and amortization $472.6 $457.1 $453.6 Buildings 1,777.7 1,653.8 Research and development expense 235.0 218.3 208.2 Buildings under capital lease 25.0 19.6 Advertising and media expense Equipment 4,719.7 4,405.6 (including production and Equipment under capital lease 18.9 25.0 communication costs) 843.7 908.5 732.1 Capitalized soft ware 367.7 318.7 Construction in progress 521.9 469.0 Total land, buildings, and equipment 7,492.1 6,949.7 Less accumulated depreciation (4,146.2) (3,822.0) Total $3,345.9 $3,127.7

Annual Report 2011 81 Th e components of interest, net are as follows: Certain Consolidated Statements of Cash Flows amounts are as follows: Fiscal Year Expense (Income), in Millions 2011 2010 2009 Fiscal Year Interest expense $360.9 $374.5 $409.5 In Millions 2011 2010 2009 Capitalized interest (7.2) (6.2) (5.1) Cash interest payments $333.1 $384.1 $292.8 Interest income (7.4) (6.8) (21.6) Cash paid for income taxes 699.3 672.5 395.3 Loss on debt repurchase — 40.1 — Interest, net $346.3 $401.6 $382.8 In ﬁ scal 2009, we acquired Humm Foods by issuing 1.8 million shares of our common stock to its shareholders, with a value of $55.0 million, as consideration. Th is acquisition is treated as a non-cash transaction in our Consolidated Statement of Cash Flows.

NOTE 18. QUARTERLY DATA (UNAUDITED)

Summarized quarterly data for ﬁ scal 2011 and ﬁ scal 2010 follows:

First Quarter Second Quarter Th ird Quarter Fourth Quarter Fiscal Year Fiscal Year Fiscal Year Fiscal Year In Millions, Except Per Share Amounts 2011 2010 2011 2010 2011 2010 2011 2010 Net sales $3,533.1 $3,482.4 $4,066.6 $4,034.7 $3,646.2 $3,589.3 $3,634.3 $3,529.2 Gross margin 1,524.3 1,440.8 1,634.0 1,728.3 1,430.8 1,359.8 1,364.4 1,271.3 Net earnings attributable to General Mills (a) 472.1 420.6 613.9 565.5 392.1 332.5 320.2 211.9 EPS: Basic $ 0.73 $ 0.64 $ 0.96 $ 0.86 $ 0.61 $ 0.50 $ 0.50 $ 0.32 Diluted $ 0.70 $ 0.62 $ 0.92 $ 0.83 $ 0.59 $ 0.48 $ 0.48 $ 0.31 Dividends per share $ 0.28 $ 0.24 $ 0.28 $ 0.23 $ 0.28 $ 0.25 $ 0.28 $ 0.24 Market price of common stock: High $ 38.93 $ 30.20 $ 37.54 $ 34.56 $ 37.20 $ 36.18 $ 39.95 $ 36.96 Low $ 33.57 $ 25.59 $ 34.99 $ 28.99 $ 34.60 $ 34.00 $ 35.99 $ 34.74

(a) Net earnings in the fourth quarter of ﬁ scal 2010 included interest expense of $40.1 million related to the repurchase of certain notes and a non-cash income tax charge of $35.0 million resulting from a change in deferred tax assets.

82 General Mills Glossary

AOCI. Accumulated other comprehensive income (loss). Interest bearing instruments. Notes payable, long- term debt, including current portion, cash and cash Average total capital. Used for calculating return equivalents, and certain interest bearing investments on average total capital. Notes payable, long-term debt classifi ed within prepaid expenses and other current including current portion, noncontrolling interests, and assets and other assets. stockholders’ equity, excluding AOCI and certain aft er- tax earnings adjustments. The average is calculated LIBOR. London Interbank Off ered Rate. using the average of the beginning of fi scal year and end of fi scal year Consolidated Balance Sheet amounts for Mark-to-market. Th e act of determining a value for these line items. fi nancial instruments, commodity contracts, and related assets or liabilities based on the current market price for Core working capital. Accounts receivable plus inven- that item. tories less accounts payable, all as of the last day of our fi scal year. Net mark-to-market valuation of certain commodity positions. Realized and unrealized gains and losses Depreciation associated with restructured assets. on derivative contracts that will be allocated to segment Th e increase in depreciation expense caused by updat- operating profi t when the exposure we are hedging ing the salvage value and shortening the useful life of aff ects earnings. depreciable fi xed assets to coincide with the end of production under an approved restructuring plan, but only Net price realization. Th e impact of list and promoted if impairment is not present. price changes, net of trade and other price promotion costs. Derivatives. Financial instruments such as futures, swaps, options, and forward contracts that we use to man- Noncontrolling interests. Interests of subsidiaries age our risk arising from changes in commodity prices, held by third parties. interest rates, foreign exchange rates, and stock prices. Notional principal amount. Th e principal amount on Fixed charge coverage ratio. The sum of earnings which fi xed-rate or fl oating-rate interest payments are before income taxes and fi xed charges (before tax), divided calculated. by the sum of the fi xed charges (before tax) and interest. OCI. Other comprehensive income (loss). Generally Accepted Accounting Principles (GAAP). Guidelines, procedures, and practices that we are Operating cash fl ow to debt ratio. Net cash provided required to use in recording and reporting accounting by operating activities, divided by the sum of notes pay- information in our fi nancial statements. able and long-term debt, including current portion.

Goodwill. Th e diff erence between the purchase price Reporting unit. An operating segment or a business of acquired companies and the related fair values of net one level below an operating segment. assets acquired. Return on average total capital. Net earnings attrib- Hedge accounting. Accounting for qualifying hedges utable to General Mills, excluding aft er-tax net interest, that allows changes in a hedging instrument’s fair value and adjusted for certain items aff ecting year-over-year to off set corresponding changes in the hedged item in comparability, divided by average total capital. the same reporting period. Hedge accounting is permit- ted for certain hedging instruments and hedged items Segment operating profi t margin. Segment operating only if the hedging relationship is highly eff ective, and profi t divided by net sales for the segment. only prospectively from the date a hedging relationship is formally documented.

Annual Report 2011 83 Supply chain input costs. Costs incurred to produce Variable interest entities (VIEs). A legal structure and deliver product, including ingredient and conversion that is used for business purposes that either (1) does costs, inventory management, logistics, warehousing, not have equity investors that have voting rights and and others. share in all the entity’s profi ts and losses or (2) has equity investors that do not provide suffi cient fi nancial Total debt. Notes payable and long-term debt, includ- resources to support the entity’s activities. ing current portion. Working capital. Current assets and current liabili- Transaction gains and losses. The impact on our ties, all as of the last day of our fi scal year. Consolidated Financial Statements of foreign exchange rate changes arising from specifi c transactions.

Translation adjustments. Th e impact of the conversion of our foreign affi liates’ fi nancial statements to U.S. dollars for the purpose of consolidating our fi nancial statements.

84 General Mills Non-GAAP Measures

Th is report includes measures of fi nancial performance management and/or as a component of the board of that are not defi ned by generally accepted accounting director’s measurement of our performance for incentive principles (GAAP). For each of these non-GAAP fi nan- compensation purposes. Management and the board cial measures, we are providing below a reconciliation of of directors believe that these measures provide useful the diff erences between the non-GAAP measure and the information to investors. Th ese non-GAAP measures most directly comparable GAAP measure. Th ese non- should be viewed in addition to, and not in lieu of, the GAAP measures are used in reporting to our executive comparable GAAP measure.

TOTAL SEGMENT OPERATING PROFIT

Fiscal Year In Millions 2011 2010 2009 2008 2007 Net sales: U.S. Retail $ 10,163.9 $ 10,209.8 $ 9,973.6 $ 9,028.2 $ 8,407.7 International 2,875.5 2,684.9 2,571.8 2,535.5 2,104.5 Bakeries and Foodservice 1,840.8 1,740.9 2,010.4 1,984.3 1,791.8 Total $ 14,880.2 $ 14,635.6 $ 14,555.8 $ 13,458.0 $ 12,303.9 Operating profi t: U.S. Retail $ 2,347.9 $ 2,385.2 $ 2,206.6 $ 1,976.7 $ 1,921.3 International 291.4 192.1 239.2 247.5 200.6 Bakeries and Foodservice 306.3 263.2 178.4 170.2 151.1 Total segment operating profi t 2,945.6 2,840.5 2,624.2 2,394.4 2,273.0 Memo: Segment operating profi t as a % of net sales 19.8% 19.4% 18.0% 17.7 % 18.5% Unallocated corporate items 184.1 203.0 342.5 144.2 174.8 Divestitures (gain), net (17.4) — (84.9) — — Restructuring, impairment and other exit costs 4.4 31.4 41.6 21.0 39.3 Operating Profi t $ 2,774.5 $ 2,606.1 $ 2,325.0 $ 2,229.2 $ 2,058.9

ADJUSTED DILUTED EPS, EXCLUDING CERTAIN ITEMS AFFECTING COMPARABILITY

Fiscal Year Per Share Data 2011 2010 2009 2008 2007 Diluted earnings per share, as reported $2.70 $2.24 $1.90 $1.85 $1.59 Mark-to-market eﬀ ects (a) (0.09) 0.01 0.11 (0.05) — Divestitures gain, net (b) — — (0.06) — — Gain from insurance settlement (c) — — (0.04) — — Uncertain tax items (d) (0.13) — 0.08 (0.04) — Tax charge - health care reform (e) — 0.05 — — — Diluted earnings per share, excluding certain items aﬀ ecting comparability $2.48 $2.30 $1.99 $1.76 $1.59

(a) Net (gain) loss from mark-to-market valuation of certain commodity positions and grain inventories. (b) Net gain on divestitures of certain product lines. (c) Gain on settlement with insurance carrier covering the loss of a manufacturing facility in Argentina. (d) Eff ects of court decisions and audit settlements on uncertain tax matters. (e) Enactment date charges related to the Patient Protection and Aff ordable Care Act, as amended by the Health Care and Education Reconciliation Act of 2010, aff ecting deferred taxes associated with Medicare Part D subsidies.

Annual Report 2011 85 RETURN ON AVERAGE TOTAL CAPITAL

Fiscal Year In Millions 2011 2010 2009 2008 2007 2006

Net earnings attributable to General Mills $ 1,798.3 $ 1,530.5 $ 1,304.4 $ 1,294.7 $ 1,143.9 Interest, net, aft er-tax 243.5 261.1 240.8 263.8 242.9 Earnings before interest, aft er-tax 2,041.8 1,791.6 1,545.2 1,558.5 1,386.8 Mark-to-market eﬀ ects (60.0) 4.5 74.9 (35.9) — Divestitures gain, net — — (38.0) — — Gain from insurance settlement — — (26.9) — — Uncertain tax items (88.9) — 52.6 (30.7) — Tax charge - heath care reform — 35.0 — — — Earnings before interest, aft er-tax for return on capital calculation $ 1,892.9 $ 1,831.1 $ 1,607.8 $ 1,491.9 $ 1,386.8 Current portion of long-term debt $ 1,031.3 $ 107.3 $ 508.5 $ 442.0 $ 1,734.0 $ 2,131.5 Notes payable 311.3 1,050.1 812.2 2,208.8 1,254.4 1,503.2 Long-term debt 5,542.5 5,268.5 5,754.8 4,348.7 3,217.7 2,414.7 Total debt 6,885.1 6,425.9 7,075.5 6,999.5 6,206.1 6,049.4 Noncontrolling interests 246.7 245.1 244.2 246.6 1,139.2 1,136.2 Stockholders’ equity 6,365.5 5,402.9 5,172.3 6,212.2 5,318.7 5,772.3 Total capital 13,497.3 12,073.9 12,492.0 13,458.3 12,664.0 12,957.9 Accumulated other comprehensive (income) loss 1,010.8 1,486.9 877.8 (173.1) 120.1 (125.4) Aft er-tax earnings adjustments (a) (310.5) (161.6) (201.1) (263.7) (197.1) (197.1) Adjusted total capital $ 14,197.6 $ 13,399.2 $ 13,168.7 $ 13,021.5 $ 12,587.0 $ 12,635.4 Adjusted average total capital $ 13,798.4 $ 13,283.9 $ 13,095.1 $ 12,804.3 $ 12,611.2 Return on average total capital 13.7% 13.8% 12.3% 11.7% 11.0%

(a) Sum of current year and previous year aft er-tax adjustments.

INTERNATIONAL SEGMENT AND REGION SALES currencies other than U.S. dollars are converted into U.S. GROWTH RATES EXCLUDING IMPACT OF FOREIGN dollars at the average exchange rates in eff ect during EXCHANGE the corresponding period of the prior fi scal year, rather than the actual average exchange rates in eff ect during Th e reconciliation of International segment and region the current fi scal year. Th erefore, the foreign currency sales growth rates as reported to growth rates exclud- impact is equal to current-year results in local curren- ing the impact of foreign currency exchange below dem- cies multiplied by the change in the average foreign cur- onstrates the eff ect of foreign currency exchange rate rency exchange rates between the current fi scal period fl uctuations from year to year. To present this infor- and the corresponding period of the prior fi scal year. mation, current-period results for entities reporting in Fiscal Year 2011 Percentage Change Percentage Change in Net Sales in Net Sales Impact of Foreign on Constant as Reported Currency Exchange Currency Basis Europe 5% (2)% 7% Canada 8 5 3 Asia/Pacifi c 14 5 9 Latin America (5) (16) 11 Total International segment 7% Flat 7%

86 General Mills WORLDWIDE NET SALES INCLUDING PROPORTIONATE SHARE OF ONGOING JOINT VENTURES

Th e 8th Continent business was sold in ﬁ scal 2008. To view the performance of our joint ventures on an ongoing basis, we have provided certain information excluding 8th Continent. Th e reconciliation of this non-GAAP measure is shown in the following table:

Fiscal Year In Millions 2011 2010 2009 2008 2007 Consolidated net sales $14,880 $14,636 $14,556 $13,548 $12,304 Proportionate share of ongoing joint venture net sales 1,222 1,180 1,133 1,091 985 Worldwide net sales, including proportionate share of ongoing joint ventures $16,102 $15,816 $15,689 $14,639 $13,289

PRO FORMA NET SALES FOR purposes. For multi-year comparisons, all international CERTAIN GLOBAL BUSINESSES net sales are converted from local currency to USD using the estimated fi scal 2011 foreign exchange rate. Th e components of the pro forma net sales for our fi ve Also includes our proportionate share of Häagen-Dazs global businesses and the basis for calculating each Japan net sales, which represents fi scal 2011 net sales component are described below. in local currency, translated to USD at monthly average actual rates. Ready-to-eat Cereal Fiscal 2011 U.S. net sales plus fi scal 2011 international Convenient Meals and Wholesome Snack Bars net sales in local currency, translated to U.S. dollars Fiscal 2011 U.S. net sales plus fi scal 2011 international (USD) utilizing an estimated fi scal 2011 foreign exchange net sales in local currency, translated to USD utilizing rate set at the beginning of the fi scal year, and used an estimated fi scal 2011 foreign exchange rate set at the for management reporting and planning purposes. Also beginning of the fi scal year, and used for management includes our proportionate share of Cereal Partners reporting and planning purposes. For multi-year com- Worldwide net sales, which represents fi scal 2011 net parisons, all international net sales are converted from sales in local currency, translated to USD at monthly local currency to USD using the estimated fi scal 2011 average actual rates. foreign exchange rate.

Super-premium Ice Cream Refrigerated Yogurt Fiscal 2011 international net sales in local currency, Fiscal 2011 U.S. net sales plus $1.2 billion of estimated translated to USD utilizing an estimated fi scal 2011 for- pro forma fi scal 2012 net sales from the international eign exchange rate set at the beginning of the fi scal Yoplait yogurt business we acquired in July 2011. year, and used for management reporting and planning

Annual Report 2011 87 Total Return to Stockholders

Th ese line graphs compare the cumulative total return for holders of our common stock with the cumulative total return of the Standard & Poor’s 500 Stock Index and Standard & Poor’s 500 Packaged Foods Index for the last fi ve-year and ten-year fi scal periods. Th e graphs assume the investment of $100 in each of General Mills’ common stock and the specifi ed indexes at the beginning of the applicable period, and assume the reinvestment of all dividends. On July 8, 2011, there were approximately 33,400 record holders of our common stock.

Total Return to Stockholders 5 Years 200

180

160

140

120

100

Total Return Index Total 40

May 06 May 07 May 08 May 09 May 10 May 11

Total Return to Stockholders 10 Years 260 240 220 200 180 160 140 120 100 80

Total Return Index Total 60 40 20 0 May 01 May 02 May 03 May 04 May 05 May 06 May 07 May 08 May 09 May 10 May 11

General Mills (GIS) S&P 500 S&P Packaged Foods

88 General Mills Shareholder Information

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What started 70 years ago as a brand new cereal has become a mainstay on millions of breakfast tables. Today, one of every eight boxes of cereal sold in the U.S. is a Cheerios variety.